The effect of financial consumer protection on banks’ competitiveness and profitability

Download This Article

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

This study examines the effect of Financial Consumer Protection (FCP) on banks’ competitiveness and profitability, using data from Jordanian banks for the period 2013–2020. The study constructs a FCP index related to customer complaints statistics, communication channels, dispute resolution, and protection of the rights of special needs people. Fixed-effect model is used as an estimator based on balanced panel data. The study finds evidence that stricter and complying with FCP requirements tend to decrease banks’ profitability in Jordan. The main result is confirmed by different robustness tests (dynamic panel estimation by applying the generalized method of moments (GMM) and random-effect). Overall, this study contributes to the existing banking literature and provides a better understanding and balancing between customers of financial products’ interests and financial institutions’ rights and obligations. Finally, this study has essential implications for customers of financial products, policymakers, and researchers. Thus, future studies in this area are recommended.

Keywords: Financial Consumer Protection, Banks, Competitiveness, Profitability, Jordan

Authors’ individual contribution: Conceptualization — D.D. and R.J.; Methodology — D.D. and R.J.; Software — R.J.; Validation — D.D. and R.J.; Formal Analysis — D.D.; Investigation — R.J.; Resources — R.J.; Data Curation — D.D. and R.J.; Writing — Original Draft — D.D. and R.J.; Writing — Review & Editing — D.D.; Visualization — D.D.; Supervision — D.D.; Project Administration — D.D.; Funding — D.D.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: D18, G21, G28

Received: 17.05.2022
Accepted: 14.10.2022
Published online: 18.10.2022

How to cite this paper: Daradkah, D., & Janaideh, R. (2022). The effect of financial consumer protection on banks’ competitiveness and profitability. Corporate Governance and Organizational Behavior Review, 6(4), 134–140. https://doi.org/10.22495/cgobrv6i4p12