Banking Competition On Investment Efficiency of Non Financial Companies in Indonesia

Authors

  • Ferris Hosema Putra Universitas Pelita Harapan
  • Vina Nugroho Universitas Pelita Harapan

Keywords:

Investment Efficiency, Banking Competition, TOP, HHI, Lerner, GMM

Abstract

The structure of the banking market influences corporate investment efficiency through credit allocation, where the level of banking competition determines the quality of credit screening and capital allocation. This study aims to examine the impact of banking competition on the investment efficiency of non-financial firms listed on the Indonesia Stock Exchange during the 2013–2023 period. The banking market structure is measured using three key indicators: Top 3 Bank Assets (TOP), the Herfindahl-Hirschman Index (HHI), and the Lerner Index. Data is processed using the Generalized Method of Moments (GMM) with a two-step system estimation and robust standard errors. Additionally, diagnostic tests (AR(1), AR(2), Sargan-Hansen) and robustness checks were conducted by removing dummy control variables. The results show that the TOP and HHI indicators have significantly negative coefficients on investment efficiency, indicating that a more concentrated banking market leads to more efficient corporate investment allocation. Although the Lerner Index also shows a negative coefficient, its influence is relatively weak in supporting the alternative hypothesis. These findings suggest that a more centralized banking structure can enhance credit monitoring mechanisms and improve investment efficiency in Indonesia.

References

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

Bain, J. S. (1951). Relation of Profit Rate to Industry Concentration: American Manufacturing, 1936-1940. The Quarterly Journal of Economics, 65(3), 293-324. doi:10.2307/1882217

Barro, R. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics, 106(2), 407-443. doi:10.2307/2937943

Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2004). Bank competition and access to finance: International evidence. Journal of Money, Credit, and Banking, 36(3), 627-648. doi:10.1353/mcb.2004.0039

Beck, T., Levine, R., & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58(1–2), 261-300. doi:10.1016/S0304-405X(00)00072-6

Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48(2–3), 112-131. doi:10.1016/J.JACCECO.2009.09.001

Bikker, J. A., & Haaf, K. (2002). Measures of Competition and Concentration in the Banking Industry: A Review of the Literature. Economic & Financial Modelling. Diambil kembali dari https://www.dnb.nl/media/o2vdj421/measures_of_competition_and_concentration_in_the_banking_industry.pdf

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. doi:10.1016/S0304-4076(98)00009-8

Breuer, W., Muller, T., Rosenbach, D., & Salzmann, A. (2018). Corporate Social Responsibility, Investor Protection, and Cost of Equity: A Cross-country Comparison. Journal of Banking & Finance, 34-55. doi:10.1016/j.jbankfin.2018.07.018

Claessens, S., & Laeven, L. (2005). Financial dependence, banking sector competition, and economic growth. Journal of the European Economic Association, 3(1), 179-207. Diambil kembali dari https://research.tilburguniversity.edu/en/publications/financial-dependence-banking-sector-competition-and-economic-grow

Degryse, H., & Jong, A. d. (2006). Investment and internal finance: Asymmetric information or managerial discretion? International Journal of Industrial Organization Volume 24, Issue 1, 125-147. doi:10.1016/j.ijindorg.2005.03.006

Degryse, H., & Ongena, S. (2005). Distance, lending relationships, and competition. The Journal of Finance, 60(1), 231-266. Diambil kembali dari https://scholar.google.com/citations?view_op=view_citation&hl=nl&user=WXWj19cAAAAJ&citation_for_view=WXWj19cAAAAJ:u5HHmVD_uO8C

Diamond, D. W. (1984). Financial intermediation and delegated monitoring. The Review of Economic Studies, 51(3), 393-414. doi:10.2307/2297430

Giroud, X., & Mueller, H. M. (2009). Does Corporate Governance Matter in Competitive Industries? Working Paper 14877. doi:10.3386/w14877

Goetz, M. R. (2018). Competition and bank stability. Journal of Financial Intermediation, 35, 57-69. doi:10.1016/J.JFI.2017.06.001

Greenwald, B., Stiglitz, J. E., & Weiss, A. (1984). Informational Imperfections in the Capital Market and Macroeconomic Fluctuations. The American Economic Review, 74(2), 194-199. Diambil kembali dari http://www.jstor.org/stable/1816354

Huynh, J. (2024). Banking market structure and corporate investment efficiency. The North American Journal of Economics and Finance Volume 74. doi:10.1016/j.najef.2024.102236

Jensen, M. C. (1986). Agency Cost of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, Vol. 76, No. 2, May 1986, 323-329. Diambil kembali dari http://dx.doi.org/10.2139/ssrn.99580

Khan, H. H., & Kutan, A. M. (2023). Banking sector competition and firms’ financial constraints: Firm-Level evidence from developing economies. Journal of International Financial Markets, Institutions and Money, 88. doi:10.1016/J.INTFIN.2023.101848

Laeven, L., & Levine, R. (2007). Is there a diversification discount in financial conglomerates? Journal of Financial Economics Volume 85, 331-367. doi:10.1016/j.jfineco.2005.06.001

Leon, F. (2015). Does bank competition alleviate credit constraints in developing countries? Journal of Banking & Finance, 57, 130-142. doi:10.1016/J. JBANKFIN.2015.04.005

Levine, R. (2005). Finance and growth: Theory and evidence. Handbook of Economic Growth, 1, 865-934. doi:10.1016/S1574-0684(05)01012-9

Levine, R., Loayza, N., & Beck, T. (2000). Financial intermediation and growth: Causality and causes. Journal of Monetary Economics, 46(1), 31-77. doi:10.1016/S0304-3932(00)00017-9

Myers, S. C. (1976). Determinants of Corporate Borrowing. Working paper (Sloan School of Management), 875-876. Diambil kembali dari https://dspace.mit.edu/handle/1721.1/1915?show=full

Si, D. K., Wang, M., & Ding, H. (2023). Capital account liberalization and corporate maturity mismatch: The role of bank competition. Pacific-Basin Finance Journal, 82. doi:10.1016/J.PACFIN.2023.102137

Stigler, G. J. (1950). The Theory of Oligopoly. Journal of Political Economy Volume 72, Number 1, 44. Diambil kembali dari https://www.journals.uchicago.edu/doi/epdf/10.1086/258853

Stulz, R. (1990). Managerial discretion and optimal financing policies. J. Financial Econ. 1990, 3-27. doi:10.1016/0304-405x(90)90011-n

Sutton, J. (1992). Sunk Costs and Market Structure: Price Competition, Advertising and the Evolution of Concentration. The Economic Journal, Volume 102, Issue 415, 1576-1577. doi:10.2307/2234834

Wang, X., Han, L., & Huang, X. (2020). Bank competition, concentration and EU SME cost of debt. International Review of Financial Analysis, 71. doi:10.1016/j.irfa.2020.101534

Downloads

Published

2025-12-10

Issue

Vol. 5 (2025): Proceedings of the 5th International Conference on Entrepreneurship (IConEnt)

Section

Articles

License

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.