Market Concentration Scenario in Financial Sector of Bangladesh
Date
2020-12
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North South Business Review
Volume
11
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1
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Abstract
The Herfindahl–Hirschman Index (HHI) is one of the most commonly used measures to assess market concentration in industries and an increase in the value of the index is interpreted as an indicator of reduced level of competition. Measuring the level of competitiveness in an industry should help the decision makers and regulators formulate policies to facilitate proper growth of the industry. In this study, popular measures such as Herfindahl-Hirschman Index (HHI), 3-firm concentration ratio, and entropy concentration index were measured using market capitalization data of companies across different financial sectors such as banks, non-banking financial institutions (NBFI), insurance companies – life and general, and mutual funds. A total of about 140 companies in financial sector listed at the Dhaka Stock Exchange (DSE) were considered in this study and daily trading data from last ten years starting from January 2009 were analyzed. The NBFI, life insurance companies, and asset managers of mutual funds were found to be operating in highly concentrated market that offers relatively less competitiveness. On the other hand, industries such as banks and general insurance companies were found to have relatively less market concentration that fosters high competitiveness.
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North South University