Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: Editor-in-chief: Suman Banerjee
Open Access
Journal Browser
Journal of Finance and Economics. 2021, 9(2), 53-64
DOI: 10.12691/jfe-9-2-2
Open AccessArticle

Do Competition, Size, and Development Indicators Matter for the Efficiency of BRICS Banks?

Anupam Das Gupta1, , Ishrat Sultana1 and Dipa Das2

1Department of Finance, University of Chittagong

2Department of Management, University of Chittagong

Pub. Date: April 12, 2021

Cite this paper:
Anupam Das Gupta, Ishrat Sultana and Dipa Das. Do Competition, Size, and Development Indicators Matter for the Efficiency of BRICS Banks?. Journal of Finance and Economics. 2021; 9(2):53-64. doi: 10.12691/jfe-9-2-2


This study investigates the effect of competition, size, and development indicators on efficiency using the panel data of 1137 BRICS (Brazil, Russia, India, China, South Africa) banks over sixteen years 2000-2015. The core finding of the two-step system generalized methods of moments (2GMM) are: (i) Both competition and size have a significant positive association with the efficiency of BRICS banks. (ii) No significant association between inflation and efficiency is observed; whereas, economic progression (gross domestic products) has a positive effect on the efficiency of revenue and inverse effect on cost efficiency. (iii) The interim term size and competition have a homogeneous effect on each type of efficiency; however, the outcomes are heterogeneous when efficiency measures change. Finally, the study evidences the nonlinear relationship of competition, size, and development indicators of BRICS banks.

Competition Development indicators Efficiency BRICS banks GMM estimator

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit


[1]  Kasman, S.; Kasman, A., Bank competition, concentration and financial stability in the Turkish banking industry. Economic Systems. 39 (3). 502-517. 2015.
[2]  Gupta, A. D.; Moudud-Ul-Huq, S., Do competition and revenue diversification have significant effect on risk-taking? Empirical evidence from BRICS banks. International Journal of Financial Engineering. 7 (01). 2050007. 2020.
[3]  Moudud-Ul-Huq, S.; Zheng, C.; Gupta, A. D.; Hossain, S. A.; Biswas, T., Risk and Performance in Emerging Economies: Do Bank Diversification and Financial Crisis Matter? Global Business Review. 0972150920915301. 2020.
[4]  Zheng, C.; Gupta, A. D.; Moudud-Ul-Huq, S., Do market competition and development indicators matter for banks' risk, capital and efficiency relationship? International Journal of Financial Engineering. 4 (2). 2017.
[5]  Amidu, M.; Wolfe, S., Does bank competition and diversification lead to greater stability? Evidence from emerging markets. Review of Development Finance. 3 (3). 152-166. 2013.
[6]  Moudud-Ul-Huq, S., Does bank competition matter for performance and risk-taking? empirical evidence from BRICS countries. International Journal of Emerging Markets. 2020.
[7]  Zheng, C.; Gupta, A. D.; Moudud-Ul-Huq, S., Effect of human capital efficiency on bank risk-taking behavior and capital regulation: empirical evidence from a developing country. Asian Economic and Financial Review. 8 (2). 231-247. 2018.
[8]  Jeon, J. Q.; Lim, K. K., Bank competition and financial stability: A comparison of commercial banks and mutual savings banks in Korea. Pacific-Basin Finance Journal. 25. 253-272. 2013.
[9]  Tabak, B. M.; Fazio, D. M.; Cajueiro, D. O., The relationship between banking market competition and risk-taking: Do size and capitalization matter? Journal of Banking & Finance. 36 (12). 3366-3381. 2012.
[10]  Kouki, I.; Al-Nasser, A., The implication of banking competition: Evidence from African countries. Research in International Business and Finance. 39. 878-895. 2017.
[11]  Demsetz, H., Industry Structure, Market Rivalry, and Public Policy. The Journal of Law and Economics. 16. 1-9. 1973.
[12]  Schaeck, K.; Čihák, M., How Does Competition Affect Efficiency and Soundness in Banking? New Perspectives and Empirical Evidence. Social Science Electronic Publishing. 35 (3). págs. 81-100. 2008.
[13]  Evanoff, D. D.; Ors, E., Local Market Consolidation and Bank Productive Efficiency. Ssrn Electronic Journal. 2003.
[14]  Kumbhakar, S. C.; Lozano-Vivas, A.; Hasan, I., The Effects of Deregulation on the Performance of Financial Institutions: The Case of Spanish Savings Banks. Journal of Money Credit & Banking. 33 (1). 101-120. 2001.
[15]  Deyoung, R.; Hasan, I.; Kirchhoff, B., The Impact of Out-of-State Entry on the Cost Efficiency of Local Commercial Banks. Journal of Economics & Business. 50 (2). 191-203. 1998.
[16]  Phan, H. T. M.; Daly, K.; Akhter, S., Bank efficiency in emerging Asian countries. Research in International Business and Finance. 38. 517-530. 2016.
[17]  Alhassan, A. L.; Ohene-Asare, K., Competition and bank efficiency in emerging markets: empirical evidence from Ghana. African Journal of Economic and Management Studies. 7 (2). 268-288. 2016.
[18]  Fungáčová, Z.; Poghosyan, T., Determinants of bank interest margins in Russia: Does bank ownership matter? Economic Systems. 35 (4). 481-495. 2011.
[19]  Kasman, A.; Carvallo, O., FINANCIAL STABILITY, COMPETITION AND EFFICIENCY IN LATIN AMERICAN AND CARIBBEAN BANKING. Journal of Applied Economics. XVII (2). 301-324. 2014.
[20]  Arora, P., Reforms, Ownership and Determinants of Efficiency: An Empirical Study of Commercial Banks in India. Journal of Emerging Market Finance. 13 (1). 103-138. 2014.
[21]  Leroy, A., Banking competition, financial dependence and productivity growth in Europe. International Economics. 2016.
[22]  Jara-Bertin, M.; Moya, J. A.; Perales, A. R., Determinants of bank performance: evidence for Latin America. Academia Revista Latinoamericana de Administración. 27 (2). 164-182. 2014.
[23]  Assefa, E.; Hermes, N.; Meesters, A., Competition and the performance of microfinance institutions. Applied Financial Economics. 23 (9). 767-782. 2013.
[24]  De Guevara, J. F.; Maudos, J.; Pérez, F., Integration and competition in the European financial markets. Journal of International Money and Finance. 26 (1). 26-45. 2007.
[25]  Angelini, P.; Cetorelli, N., The effects of regulatory reform on competition in the banking industry. journal of Money, credit and banking. 663-684. 2003.
[26]  Koetter, M., The stability of bank efficiency rankings when risk preferences and objectives are different. European Journal of Finance. 14 (2). 115-135. 2008.
[27]  Tan, Y., The Measurement of Bank Efficiency and Bank Risk in China. In Investigating the Performance of Chinese Banks: Efficiency and Risk Features, Springer: 2016; pp 105-128.
[28]  Niţoi, M.; Spulbar, C., An Examination of Banks' Cost Efficiency in Central and Eastern Europe. Procedia Economics and Finance. 22. 544-551. 2015.
[29]  Altunbas, Y.; Carbo, S.; Gardener, E. P.; Molyneux, P., Examining the relationships between capital, risk and efficiency in European banking. European Financial Management. 13 (1). 49-70. 2007.
[30]  Zheng, C.; Gupta, A. D.; Moudud-Ul-Huq, S., Do human capital and cost efficiency affect risk and capital of commercial banks? An empirical study of a developing country. Asian Economic and Financial Review. 8 (1). 22-37. 2018.
[31]  Tan, Y.; Floros, C., Risk, capital and efficiency in Chinese banking. Journal of International Financial Markets, Institutions and Money. 26. 378-393. 2013.
[32]  Chan, S. G.; Karim, M. Z. A.; Burton, B.; Aktan, B., Efficiency and risk in commercial banking: empirical evidence from East Asian countries. The European Journal of Finance. 20 (12). 1114-1132. 2014.
[33]  Sufian, F.; Kamarudin, F., Determinants of revenue efficiency of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management. 2015.
[34]  Chaibi, H.; Ftiti, Z., Credit Risk Determinants: Evidence From A Cross-Country Study. Research in International Business & Finance. 33 (C). 1-16. 2015.
[35]  Beck, T.; Demirgüç-Kunt, A.; Merrouche, O., Islamic vs. conventional banking: Business model, efficiency and stability. Journal of Banking & Finance. 37 (2). 433-447. 2013.
[36]  Pan, H.; Wang, C., House prices, bank instability, and economic growth: Evidence from the threshold model. Journal of Banking & Finance. 37 (5). 1720-1732. 2013.
[37]  Liang, Q.; Xu, P.; Jiraporn, P., Board characteristics and Chinese bank performance. Journal of Banking & Finance. 37 (8). 2953-2968. 2013.
[38]  Bougatef, K.; Mgadmi, N., The impact of prudential regulation on bank capital and risk-taking: The case of MENA countries. Spanish Review of Financial Economics. 14 (2). 51-56. 2016.
[39]  Kwan, S.; Eisenbeis, R. A., Bank Risk, Capitalization, and Operating Efficiency. Journal of Financial Services Research. 12:2/3. 117-131. 1997.
[40]  Meslier, C.; Tacneng, R.; Tarazi, A., Is bank income diversification beneficial? Evidence from an emerging economy. Journal of International Financial Markets, Institutions and Money. 31. 97-126. 2014.
[41]  Moudud-Ul-Huq, S.; Zheng, C.; Gupta, A. D., Does bank corporate governance matter for bank performance and risk-taking? New insights of an emerging economy. Asian Economic and Financial Review. 8 (2). 205-230. 2018.
[42]  Fiordelisi, F.; Mare, D. S., Competition and financial stability in European cooperative banks. Journal of International Money and Finance. 45. 1-16. 2014.
[43]  Arellano, M.; Bover, O., Another look at the instrumental variable estimation of error-components models. Journal of econometrics. 68 (1). 29-51. 1995.
[44]  Blundell, R.; Bond, S., GMM estimation with persistent panel data: an application to production functions. Econometric reviews. 19 (3). 321-340. 2000.
[45]  Moudud-Ul-Huq, S.; Ashraf, B. N.; Gupta, A. D.; Zheng, C., Does bank diversification heterogeneously affect performance and risk-taking in ASEAN emerging economies? Research in International Business and Finance. 2018.
[46]  Baselga-Pascual, L.; del Orden-Olasagasti, O.; Trujillo-Ponce, A., Toward a More Resilient Financial System: Should Banks Be Diversified? Sustainability. 10 (6). 1903. 2018.
[47]  Soedarmono, W.; Machrouh, F.; Tarazi, A., Bank competition, crisis and risk taking: Evidence from emerging markets in Asia. Journal of International Financial Markets, Institutions and Money. 23. 196-221. 2013.
[48]  Berger, A. N.; DeYoung, R., Problem loans and cost efficiency in commercial banks. Journal of Banking & Finance. 21. 849-870. 1997.
[49]  Deelchand, T.; Padgett, C. The relationship between risk, capital and efficiency: evidence from Japanese cooperative banks. ICMA Centre in Finance; Working Paper DP2009–12: 2009.
[50]  Fiordelisi, F.; Marques-Ibanez, D.; Molyneux, P., Efficiency and risk in European banking. Journal of Banking & Finance. 35 (5). 1315-1326. 2011.
[51]  Nguyen, T. P. T.; Nghiem, S. H., The interrelationships among default risk,capital ratio and efficiency. Managerial Finance. 41 (5). 507-525. 2015.
[52]  Aigner, D.; Lovell, C. A. K.; Schmidt, P., Formulation and estimation of stochastic frontier production function models. Journal of Econometrics. 6 (1). 21-37. 1977.
[53]  Schmidt, P.; Knox Lovell, C. A., Estimating technical and allocative inefficiency relative to stochastic production and cost frontiers. Journal of Econometrics. 9 (3). 343-366. 1979.
[54]  Deelchand, T.; Padgett, C., The Relationship between Risk, Capital and Efficiency: Evidence from Japanese Cooperative Banks. ICMA Centre Discussion Papers in Finance DP2009-12. 2009.
[55]  Sealey, C. W.; Lindley, J. T., INPUTS, OUTPUTS, AND A THEORY OF PRODUCTION AND COST AT DEPOSITORY FINANCIAL INSTITUTIONS. The Journal of Finance. 32 (4). 1251-1266. 1977.
[56]  Jondrow, J.; Knox Lovell, C. A.; Materov, I. S.; Schmidt, P., On the estimation of technical inefficiency in the stochastic frontier production function model. Journal of Econometrics. 19 (2-3). 233-238. 1982.
[57]  Coelli, T. J., A Guide to FRONTIER Version 4.1: A Computer Program for Frontier Production Function Estimation. CEP A Working Paper 96/07, Department of Econometrics, University of New England, Armidale. 1996.