The Impact of Bank Concentration on Financial Distress: The Case of the European Banking System

Andrea Cipollini, Franco Fiordelisi
2009 Social Science Research Network  
This paper examines the impact of bank concentration (measured by the Herfindahl-Hirschman Index) on bank financial distress using a dataset consisting of 18,159 bank year observations for six European countries (Spain). Financial distress is defined as a switch from two consecutive period (t-1; t) into the bottom 5 percentile of the Economic Value Added (EVA) empirical distribution in a given country. In order to account for an omitted variable bias, we impose a factor model to the correlation
more » ... to the correlation structure of the binary indicators of distress in each country. This leads to a multivariate probit model estimated by GMM. Our findings suggest that, on average, there is a negative effect of bank concentration on financial distress. However, the impact of bank consolidation turns out to be postive (relative to the average) when considering either commerical or listed banks.
doi:10.2139/ssrn.1578718 fatcat:cseyv2xd2jafnit64ndwd2ag54