Multimarket Contact, Competition and Performance: an Application on Turkish Deposit Banks

Abstract

Abstract Purpose- The main purpose of this study is to analyze how multi-market contact affects bank risk and performance. Identifying the factors affecting the risk and performance of banks is very important for the country's economy globally, and determining this may be useful for banks and financial regulators in terms of preparation for possible crises. Design/methodology/approach- Deposit banks that were continuously operating in the Turkish banking system between 2012 and 2021 were included in the research. The banking industry, when considered as firms offering many homogeneous products and services in various geographic markets, provides a very fertile laboratory environment for testing the theory of mutual avoidance. Findings- The results show that the process experienced in the Turkish banking sector in recent years has increased the competition between banks. In this process, multi-market contact has a positive effect on the asset quality of banks; It has been observed that it has a negative impact on profitability, performance and bankruptcy risk. Although competition is thought to make banks, as in all businesses, more resistant to financial crises and corruption by improving their corporate governance structures and audit structures, this study concluded that competition negatively affects their financial performance. Originality/value- There are a few studies in the relevant literature that test multi-market contact and investigate how multi-market contact affects profitability and risk. Therefore, a detailed examination of the impact of the banking sector's multi-market contact on performance and risk will make a significant contribution to the international banking literature.