Multimarket competition and profitability: Evidence from Ukrainian banking

This paper examines the impact of multimarket competition on bank performance. Exploiting a unique data set of Ukrainian banks’ branch locations, we construct three measures of multimarket contacts and find their positive effects on profitability. This finding supports the mutual forbearance hypothesis: the higher number of overlapped markets increases familiarity and similarity among multimarket rivals and makes them reluctant to compete aggressively. Further, we establish an identification strategy using the 2014 geopolitical conflict between Ukraine and Russia as an exogenous shock to banks’ branch networks. Our estimates show that the impact of the conflict on the mutual forbearance associated with banks’ multimarket contacts is more pronounced for shock-exposed banks compared to less exposed counterparts and thus the former experiences lower profitability after the conflict.