Market Discipline in Banking: A Systematic Review and Future Research Agenda

This article aims to synthesize the studies on market discipline in banking through a systematic literature review (SLR), propose a model underlining the relationship between various constructs, and identify the gaps for future research. Considering the presence of contradictory evidence on the existence, effectiveness and outcomes of market discipline, this study attempts to plug the gap in the literature through a comprehensive SLR of 412 documents, from 1980 to June 2024, using the Theory, Context, Characteristics, Methodology framework. The findings suggest that only one-fifth of the studies have a theoretical underpinning, with a handful of theories occupying centre stage. Multi-country studies dominate the literature, with substantial research being conducted in the context of conventional banks. The article also categorizes the literature into three themes and highlights the use of quantitative techniques as the prevalent methodology employed in studies. The article proposes a model to illustrate the relation between the factors, measures and impact of market discipline in banking, and lays down research gaps for further exploration. The model illustrated by the study shall serve as a ready reckoner for researchers and practitioners alike, and the research gaps highlighted shall be instrumental in advancing the current state of literature.