Influence of Bank Competition and Insurance Penetration on Stock Market Development: Evidence from a Cross-Country Analysis

Authors

Keywords:

Banking concentration, market liquidity, institutional investors, risk mitigation

Abstract

Purpose: This study investigated how bank concentration and insurance penetration influence stock market development (SMD) across countries with varying income levels.

Design/methodology/approach: This study employed secondary data from 64 nations worldwide from 2000 to 2021. It deployed pooled ordinary least squares, fixedeffect, and random-effect estimators to investigate the impact of bank concentration and insurance penetration on SMD.

Findings: The findings revealed that bank concentration negatively impacts SMD, which is significant in the full sample and lower-middle-income economies. However, it is not found to be significant in high-income and upper-middle-income economies. This indicates that the impact of bank concentration on SMD solely depends on the income level of the nation. Conversely, life insurance penetration favorably affects SMD and is robust in all regression models in all economies. By contrast, the findings showed that non-life penetration has a negligible impact on SMD.

Conclusion: This study concludes that bank concentration adversely affects SMD in lower-middle-income economies, and insurance penetration favorably impacts SMD in all types of economies.

Implications: Since high bank concentration hinders SMD in lower-middle-income nations, policymakers should focus more on increasing bank competition through regulatory reform that encourages new entrants by reducing barriers to entering the market. Policymakers should support life insurance growth by offering tax benefits, raising public awareness, and strengthening regulation to boost investor trust.

Originality/value: This study provides novel empirical evidence on the differential impacts of bank concentration and insurance penetration on SMD across highincome, upper-middle-income, and lower-middle-income economies, a critical yet underexplored dimension in financial sector research.

JEL Classification: G10, G21, G22

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Author Biographies

Prem Bahadur Budhathok, Finance Department, Saraswati Multiple Campus, Tribhuvan University, Nepal.

Prem Bahadur Budhathoki, MPhil, is an Associate Professor and Head of Research Department at the Faculty of Management, Saraswati Multiple Campus, Tribhuvan University, Nepal. He earned his Master of Philosophy (MPhil) degree with a specialization in Finance from Purbanchal University, Nepal. He has published numerous articles in both Scopus-indexed and non-indexed journals, focusing on banking and insurance. His research interests include banking, government finance, insurance, and financial literacy.

Shiva Raj Ghimire, Finance Department, Saraswati Multiple Campus, Tribhuvan University, Nepal

Shiva Raj Ghimire is an Assistant Professor at the Faculty of Management, Saraswati Multiple Campus, Tribhuvan University, Nepal. He holds a Master of Business Administration (MBA) from Tribhuvan University, Faculty of Management. Mr. Ghimire has published numerous articles in both Scopus-indexed, covering topics such as and non-indexed journals, covering topics such as banking, insurance, and economics. His areas of interest include emerging issues in banking, insurance, the national and international economy, and corporate finance.

Ganesh Bhattarai, Management Department, Nepal Commerce Campus, Tribhuvan University, Nepal

Ganesh Bhattarai, PhD., is an Associate Professor and Head of Research Department at the Faculty of Management, Nepal Commerce Campus, Tribhuvan University, Nepal. He earned his PhD. degree from Tribhuvan University, Nepal. He has published numerous articles in both Scopus-indexed and non-indexed journals, focusing on management. His research interests include organizational politics, organizational behavior, leadership, and organizational conflicts.

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Published

2025-07-28

How to Cite

Budhathok, P. B. ., Ghimire, S. R. ., & Bhattarai, G. . (2025). Influence of Bank Competition and Insurance Penetration on Stock Market Development: Evidence from a Cross-Country Analysis. Nepalese Journal of Insurance and Social Security, 8(1), 54–63. Retrieved from https://www.nepjol.info/index.php/njiss/article/view/82505

Issue

Vol. 8 No. 1 (2025)

Section

Articles

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