The goal of the current research is to study the competitionstability
relationship in the Latvian banking sector.
Research period covers seven years – from 2007 till 2013. The
sample consists of 16 Latvian commercial banks. Financial data
is extracted from BankScope database.
The main method applied to achieve the established goal is a
multiple regression analysis. Bank stability is used as a
dependent variable and proxied by risk index. To measure the
level of competition Lerner index and Boone indicator are
Besides, the consistency between concentration and competition
measures is tested applying a correlation analysis.
Concentration in the banking sector is measured using
Herfindahl-Hirschman Index (HHI) and concentration ratio
CR5. Calculations are performed in SPSS environment.
The research revealed no statistically significant relationship
between the values of Lerner index and Boone indicator
estimated for Latvian sample. The hypothesis about the
consistency between different competition measures is rejected.
In turn, the hypothesis about positive effect of competition on
bank soundness is rejected only in the case when competition is
proxied by Lerner index. Using Boone indicator as a
competition measure, the results are doubtful.