[en] We contribute to the existing literature on the nexus between competition and risk taking in the banking industry by emphasizing the role of efficiency. We test a modified Martinez-Miera and Repullo (2010)’s model which uses a single factor Vasiceck specification to analyze default’s probability for a set of loans. Our results confirm that efficiency plays a non-monotonic role in the competition-risk relationship. On top of confirming the U-shape relationship between competition and risk-taking, our reveal that banks with high and low efficiency take more risk than those with average efficiency ones. We also find that size, diversification index, macroeconomic, institutional play a key role in competition-risking-taking process in African banking industry. Besides, African Cross-border banks display less riskiness and may accordingly enhance financial stability. These results are stable across different robustness checks including alternative measures of competition and specifications and consequently serve for regulatory policies especially for providing very stringent regulatory frameworks to mitigate the implications of competition in terms of financial stability.
