Multimarket contacts and bank profitability: do diversification and bank ownership matter?

Figures & data

Table 1. Definitions of variables

Variable		Definition	Expected sign
RARROE	Risk-adjusted returns on equity	$RA{R}_{ROE}$ is the risk-adjusted return on equity as measured by the ratio of the return on equity (ROE) to the standard deviation of ROE	Dependent variable
RARROA	Risk-adjusted returns on assets	$RA{R}_{ROA}$ is the risk-adjusted return on assets as measured by the ratio of the return on assets (ROA) to the standard deviation of ROA	Dependent variable
π t-1	Persistence of profitability	A lagged variable of bank profitability	+
MMC1	Average multimarket contact	Calculated as the total number of contacts of bank i divided by the number of banks that bank i meets in each local market (see Appendix 1)	±
MMC2	Weighted multimarket contact	The number of contacts between two banks is weighted by an index measuring their similarity regarding market shares in all local markets where they meet each other	±
MMC3	Alternative weighted multimarket contact	The multimarket contact index further accounts for the size of the rival	±
GEODIV	Geographic diversification	Calculated as: $GEODI{V}_i=\sum _{j\text{inm}}HH{I}_j\left(\frac{d_{ij}}{d_i}\right)$ where HHIj is the Herfindahl—Hirschman Index in market j and dij and di are a number of branches of bank i in market j and the total number of branches of bank i, respectively	±
INEFF	Technical inefficiency	$1-{\widehat{\stackrel{ˆ}{\theta }}}_{DEA}$ where ${\widehat{\stackrel{ˆ}{\theta }}}_{DEA}$ is bias-corrected technical efficiency derived from the bootstrap DEA under variable returns to scale assumption	-
LLP	Credit risk	The ratio of loan loss provisions to total loans	-
EQTA	Bank capitalization	The ratio of equity over total assets	±
OWNER	Bank ownership	A dummy variable takes a value of 1 for a state-owned commercial bank, 0 otherwise	±
LISTED	Public bank	A dummy variable takes a value of 1 for a listed commercial bank, 0 otherwise	±
FOREIGN	Foreign ownership	The actual percentage of foreign ownership over the capital of a local bank	±
MERGER	Bank consolidation	This variable takes a value of 1 for a merged bank, 0 otherwise	±
HHI	Market concentration	The Herfindahl-Hirschman index in terms of total assets	±
RF	Bank reform	A dummy variable that takes a value of 1 for the restructuring program period of 2011–2015, 0 otherwise	-
GDP	Economic growth	The annual economic growth	±

Table 2. Descriptive statistics of variables used in the system GMM

	OBS	Mean	SD	Min	Max	Sources
RARROE	319	2.216	1.772	−2.537	13.49	Author’s estimate
RARROA	319	2.288	2.283	−2.208	18.416	Author’s estimate
MMC1	319	14.599	7.542	1	34.148	Le et al. (2019)
MMC2	319	13.931	6.958	0.910	31.275	Le et al. (2019)
MMC3	319	0.336	0.446	0.003	2.865	Le et al. (2019)
GEODIV	319	0.095	0.038	0.042	0.26	Author’s estimate
INEFF	319	0.123	0.081	0.029	0.467	Author’s estimate
LLP	319	0.009	0.009	0.001	0.11	Author’s estimate
EQTA	319	0.126	0.094	0.011	0.661	Author’s estimate
OWNER	319	0.153	0.361	0	1	Author’s estimate
LISTED	319	0.194	0.396	0	1	Author’s estimate
FOREIGN	319	0.057	0.079	0	1	Author’s estimate
MERGER	319	0.041	0.198	0	1	Author’s estimate
HHI	319	0.082	0.021	0.062	0.139	Author’s estimate
RF	319	0.514	0.501	0	1	Author’s estimate
GDP	319	0.061	0.006	0.053	0.071	The World Bank

Table 3. Correlation matrix of variables used in this study

	RARROE	RARROA	MMC1	MMC2	MMC3	GEODIV	INEFF	LLP	EQTA	LNBR	HHI	GDP
RARROE	1
RARROA		1
MMC1	−0.078	−0.094	1
MMC2	−0.085	−0.102	0.993	1
MMC3	0.184	0.129	0.517	0.459	1
GEODIV	0.067	0.028	0.577	0.530	0.831	1
INEFF	−0.000	−0.000	−0.071	−0.057	−0.136	−0.1	1
LLP	−0.062	−0.025	0.346	0.342	0.303	0.282	−0.129	1
EQTA	−0.097	−0.010	−0.487	−0.487	−0.359	−0.283	−0.06	−0.172	1
HHI	0.092	0.123	−0.294	−0.326	0.243	0.297	0.135	−0.11	0.146	−0.22	1
GDP	0.124	0.084	−0.082	−0.103	0.235	0.154	−0.098	−0.070	−0.042	−0.088	0.491	1

Table 4. The results of the impact of multimarket contacts on bank profitability in Vietnam using RAR_ROE

π	RARROE
π t-1	0.252***	0.272***	0.278***	0.247***	0.593***	0.419***	0.237***
	(0.044)	(0.071)	(0.04)	(0.058)	(0.131)	(0.074)	(0.042)
MMC1	−0.077***	−0.091**
	(0.013)	(0.042)
MMC2			−0.066***	−0.199***
			(0.022)	(0.052)
MMC3					0.345	1.025
					(0.795)	(1.383)
GEODIV	−9.979***	−31.347***	−14.351***	−20.376*			−20.73***
	(2.593)	(8.864)	(4.313)	(10.275)			(2.465)
INEFF	−3.376***	−0.874	−1.679***	−0.792	−11.964***	−5.521***	−2.402***
	(0.812)	(1.093)	(0.534)	(0.918)	(4.228)	(1.32)	(0.424)
LLP	−13.55*	−2.673	−13.362	1.272	−53.456**	−6.214	−11.11**
	(7.053)	(6.166)	(8.881)	(11.442)	(25.661)	(13.236)	(5.121)
EQTA	−7.509***	−7.555***	−7.852***	−6.088***	−3.763	−8.51***	−8.544***
	(1.939)	(2.084)	(1.945)	(1.802)	(3.796)	(2.425)	(1.866)
OWNER	0.666	−1.187	3.36***	1.554	−1.235	−1.058	1.23** *
	(0.478)	(1.816)	(0.773)	(1.746)	(1.507)	(0.812)	(0.337)
LISTED	2.485***	5.469***	2.146***	5.741***	0.639	3.552**	1.152***
	(0.464)	(1.906)	(0.552)	(2.075)	(1.541)	(1.359)	(0.419)
FOREIGN	−7.659	−3.238	−15.702***	3.417	−25.345**	−17.389*	−11.848***
	(5.282)	(11.143)	(3.613)	(11.83)	(10.892)	(9.251)	(3.413)
MERGER	−1.382*	−6.007***	1.153	−6.022***	−8.533***	−1.908	−1.727***
	(0.786)	(1.336)	(0.768)	(1.839)	(2.913)	(2.221)	(0.556)
MMC*OWNER		0.066		−0.049		−0.049
		(0.05)		(0.074)		(1.373)
MMC*LISTED		−0.127*		−0.107		−3.106**
		(0.073)		(0.083)		(1.286)
MMC*FOREIGN		0.29		0.534		36.77***
		(0.404)		(0.544)		(13.127)
MMC*MERGER		0.268***		0.316***		−6.232
		(0.058)		(0.081)		(14.154)
HHI	15.864***	24.399**	13.8741**	18.023*	−7.088	0.008	6.533*
	(4.653)	(10.216)	(6.291)	(9.751)	(8.923)	(4.521)	(3.636)
RF	0.202	−0.027	0.075	0.029	0.023	−0.679**	−0.581***
	(0.126)	(0.2)	(0.136)	(0.216)	(0.339)	(0.267)	(0.099)
GDP	−0.964	2.166	−6.499	9.249	−3.836	−18.067***	−4.495
	(4.055)	(9.335)	(6.259)	(0.296)	(28.475)	(6.5)	(3.929)
Constant	3.53***	3.979***	4.2***	3.429***	5.824***	4.483***	5.354***
	(0.364)	(1.044)	(0.43)	(1.003)	(1.922)	(1.101)	(0.354)
No. Obs	278	278	278	278	278	278	278
No. Groups	41	41	41	41	41	41	41
AR1 (p-value)	0.001	0.002	0.001	0.001	0.002	0.001	0.000
AR2 (p-value)	0.926	0.622	0.894	0.452	0.744	0.526	0.745
Hansen test (p-value)	0.941	0.981	0.977	0.992	0.581	0.645	0.886

Notes: The table contains the results estimated using the system GMM estimator. Variables in italics are instrumented through the GMM procedure following Arellano and Bover (1995). Robust standard errors are in parentheses. *, **, ***Significant at 10, 5, and 1 per cent levels, respectively.

Table 5. Interaction effect of market concentration and multimarket contact

π	RARROE	RARROE	RARROE
π t-1	0.339***	0.304***	0.545***
	(0.052)	(0.05)	(0.149)
MMC1	0.104
	(0.082)
MMC2		0.015
		(0.065)
MMC3			3.018
			(5.886)
GEODIV	−3.906	6.706
	(6.514)	(5.503)
INEFF	−3.122***	−3.367**	−9.716**
	(0.957)	(1.285)	(4.778)
LLP	−14.066**	−24.54**	−56.391*
	(6.943)	(11.341)	(32.814)
EQTA	−10.412***	−4.171	−3.635
	(2.303)	(2.895)	(3.972)
OWNER	1.624*	0.022	−0.681
	(0.919)	(0.614)	(1.619)
LISTED	1.086	2.48***	−0.176
	(0.722)	(0.72)	(1.818)
FOREIGN	−13.245**	−5.106	−22.554*
	(5.545)	(5.066)	(11.396)
MERGER	−1.536	−1.893**	−8.651***
	(1.129)	(0.808)	(2.767)
HHI	12.915	9.465	−2.755
	(12.898)	(9.595)	(12.17)
RF	−0.609***	−0.68***	0.076
	(0.209)	(0.167)	(0.359)
GDP	−4.04	21.268***	1.286
	(7.951)	(9.356)	(28.306)
MMC*HHI	−1.602*	−1.621***	−26.316
	(0.808)	(0.439)	(54.042)
Constant	3.822***	1.301	4.726**
	(1.009)	(1.204)	(2.105)
No. Obs	278	278	278
No. Groups	41	41	41
AR1 (p-value)	0.000	0.000	0.013
AR2 (p-value)	0.407	0.160	0.964
Hansen test (p-value)	0.615	0.621	0.410

Notes: The table contains the results estimated using the system GMM estimator. Variables in italics are instrumented through the GMM procedure following Arellano and Bover (1995). Robust standard errors are in parentheses. *, **, ***Significant at 10, 5, and 1 per cent levels, respectively.

Table 6. The results of robust checks

π	RARROE	RARROE	RARROE
π t-1	0.547***	0.545***	0.659***
	(0.059)	(0.059)	(0.127)
MMC1 ≥ 9	−0.036**
	(0.017)
MMC2 ≥ 9		−0.078**
		(0.03)
MMC3 ≥ 0.07			0.62
			(0.497)
GEODIV	−13.938*	−14.247**
	(6.964)	(6.731)
INEFF	−3.074**	−1.884	−6.495*
	(1.221)	(1.17)	(3.223)
LLP	6.028	15.131	−37.063*
	(11.807)	(13.456)	(18.683)
EQTA	−5.442***	−6.787***	−7.904***
	(1.431)	(1.933)	(2.862)
OWNER	2.664***	2.303**	−1.282
	(0.96)	(1.060)	(0.873)
LISTED	0.866	1.549**	0.583
	(0.567)	(0.633)	(0.925)
FOREIGN	−3.177	−1.005	−14.113*
	(3.252)	(3.767)	(7.426)
MERGER	−0.169	−0.358	−3.526**
	(0.605)	(0.608)	(1.659)
HHI	3.863	7.192	−2.228
	(6.8)	(8.166)	(7.729)
RF	−0.275**	−0.047	−0.164
	(0.125)	(0.141)	(0.256)
GDP	−7.264	−1.675	−17.989
	(10.515)	(9.939)	(10.678)
Constant	3.471***	3.138***	4.993***
	(0.701)	(0.531)	(1.524)
No. Obs	225	222	207
No. Groups	34	34	32
AR1 (p-value)	0.000	0.000	0.003
AR2 (p-value)	0.202	0.441	0.341
Hansen test (p-value)	0.999	0.998	0.545

Notes: The table contains the results estimated using the system GMM estimator. Variables in italics are instrumented through the GMM procedure following Arellano and Bover (1995). Robust standard errors are in parentheses. *, **, ***Significant at 10, 5, and 1 per cent levels, respectively.

Table 7. The relationship between multimarket contacts and bank profitability in a subsample

π	RARROE	RARROE	RARROE
π t-1	0.359***	0.446***	0.557***
	(0.052)	(0.064)	(0.102)
MMC1	−0.269***
	(0.047)
MMC2		−0.274***
		(0.053)
MMC3			4.513
			(4.45)
LARGE	−3.408***	−2.229***	0.023
	(0.952)	(0.753)	(1.78)
MMC*LARGE	0.236***	0.222***	−3.22
	(0.049)	(0.058)	(5.246)
GEODIV	−4.289	−6.266
	(6.031)	(7.245)
INEFF	−2.729***	−1.123	−2.79*
	(1.01)	(1.282)	(1.477)
LLP	−3.619	8.301	−19.584*
	(12.449)	(11.308)	(11.539)
EQTA	−11.309***	−14.584***	−7.336*
	(3.136)	(3.547)	(3.99)
OWNER	0.192	−1.75	−1.74
	(0.847)	(1.046)	(2.126)
LISTED	3.739***	3.157***	1.133
	(0.787)	(0.543)	(1.892)
FOREIGN	−6.394	−7.687	−1.172
	(4.677)	(6.002)	(10.272)
MERGER	−1.792***	−2.289***	−1.199
	(0.638)	(0.818)	(3.925)
HHI	10.4	6.931	−6.371
	(8.756)	(12.297)	(23.399)
RF	0.116	−0.295*	−0.676**
	(0.172)	(0.151)	(0.282)
GDP	−6.534	−5.215	−48.293
	(4.6)	(8.331)	(35.863)
Constant	5.908***	6.522***	5.59***
	(1.189)	(0.917)	(1.617)
No. Obs	278	278	278
No. Groups	41	41	41
AR1 (p-value)	0.03	0.001	0.000
AR2 (p-value)	0.879	0.635	0.268
Hansen test (p-value)	0.976	0.980	0.654

Notes: The table contains the results estimated using the system GMM estimator. Variables in italics are instrumented through the GMM procedure following Arellano and Bover (1995). Robust standard errors are in parentheses. *, **, ***Significant at 10, 5, and 1 per cent levels, respectively.

Table

π	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6	Model 7
π t-1	0.214***	0.363***	0.21***	0.362***	0.611***	0.589***	0.239***
	(0.079)	(0.134)	(0.069)	(0.128)	(0.11)	(0.099)	(0.052)
MMC1	−0.002	0.072
	(0.028)	(0.067)
MMC2			−0.006	−0.008
			(0.033)	(0.063)
MMC3					1.303	4.938
					(0.866)	(3.261)
GEODIV	−10.646***	−13.76**	−9.647***	−11.818*			−8.021*
	(3.245)	(5.335)	(3.5)	(6.322)			(4.719)
INEFF	−1.841***	−1.693	−1.414**	−1.259	−4.243	−3.151**	−2.499***
	(0.667)	(1.234)	(0.641)	(1.339)	(5.014)	(1.382)	(0.832)
LLP	10.3	3.78	14.661	8.204	−19.625	−19.299**	27.968***
	(9.314)	(11.111)	(9.875)	(14.986)	(37.641)	(8.965)	(7.883)
EQTA	2.531	7.56	3.016	6.592	−0.002	5.979**	−0.162
	(2.398)	(5.051)	(2.519)	(4.333)	(3.367)	(2.402)	(2.942)
OWNER	2.368***	1.222	2.397***	2.015	−1.386	0.561	1.854***
	(0.37)	(1.395)	(0.519)	(1.339)	(1.204)	(1.641)	(0.387)
LISTED	−1.895	3.628	−1.675	2.396	1.077	3.07	−0.556
	(1.217)	(2.229)	(1.03)	(2.132)	(1.121)	(1.965)	(0.405)
FOREIGN	−6.987*	0.645	−1.024	−0.133	−6.739	34.466	−5.931
	(3.867)	(10.381)	(5.09)	(14.698)	(9.648)	(28.149)	(4.191)
MERGER	−1.668**	−4.605**	−1.45**	−4.607***	−4.367	−13.711*	−2.851***
	(0.705)	(1.77)	(0.664)	(1.585)	(2.902)	(8.101)	(1.011)
MMC*OWNER		0.069*		0.036		−3.262
		(0.039)		(0.045)		(3.316)
MMC*LISTED		−0.212**		−0.145		−3.032
		(0.081)		(0.088)		(1.939)
MMC*FOREIGN		−0.286		0.208		−44.549
		(0.476)		(0.657)		(44.071)
MMC*MERGER		0.155		0.158*		30.093
		(0.103)		(0.089)		(29.549)
HHI	3.026	20.73*	4.688	15.773	−3.158	−0.037	−1.202
	(5.808)	(11.016)	(6.39)	(10.553)	(6.289)	(6.604)	(6.279)
RF	−0.02	−0.171	−0.3128	−0.075	−0.148	0.003	−0.25
	(0.203)	(0.29)	(0.164)	(0.246)	(0.415)	(0.272)	(0.175)
GDP	12.404**	15.243	16.297**	19.674	−9.972	−24.959	10.914
	(6.048)	(12.03)	(6.798)	(11.827)	(2.249)	(22.289)	(8.322)
Constant	2.092**	−1.584	1.31	−0.712	2.463	−0.567	2.299**
	(0.919)	(2.22)	(1.003)	(1.833)	(2.249)	(1.466)	(1.094)
No. Obs	278	278	278	278	278	278	278
No. Groups	41	41	41	41	41	41	41
AR1 (p-value)	0.001	0.010	0.001	0.000	0.002	0.004	0.000
AR2 (p-value)	0.363	0.281	0.202	0.278	0.302	0.289	0.299
Hansen test (p-value)	0.704	0.583	0.638	0.649	0.744	0.564	0.529

Notes: The table contains the results estimated using the system GMM estimator. Variables in italics are instrumented through the GMM procedure following Arellano and Bover (1995). Robust standard errors are in parentheses. *, **, ***Significant at 10, 5, and 1 per cent levels, respectively.

Le, T. D., Tran, S. H., & Nguyen, L. T. (2019). The impact of multimarket contacts on bank stability in Vietnam. Pacific Accounting Review, 31(3), 336–357. https://doi.org/10.1108/PAR-04-2018-0033

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Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D

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