The impact of corruption, economic freedom, regulation and transparency on bank profitability and bank stability: Evidence from the Eurozone area

This paper examines the impact of corruption, economic freedom, bank regulation and transparency on bank profitability and bank stability using a sample of 326 banks from the 19 Eurozone countries over the period 2005–2018. We use a balanced panel data set and the Arellano-Bond Generalized Method of...

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Bibliographic Details
Published in:Journal of economic behavior & organization Vol. 184; pp. 150 - 177
Main Authors: Asteriou, Dimitrios, Pilbeam, Keith, Tomuleasa, Iuliana
Format: Journal Article
Language:English
Published: Elsevier B.V 01.04.2021
Subjects:
Bank regulation
Corruption
Dynamic panels
Economic freedom
Financial crisis
Transparency
Dynamic panels
Bank regulation
Transparency
C33
Corruption
G21
G01
Economic freedom
G28
Financial crisis
ISSN:0167-2681, 1879-1751
Online Access:Get full text
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Summary:This paper examines the impact of corruption, economic freedom, bank regulation and transparency on bank profitability and bank stability using a sample of 326 banks from the 19 Eurozone countries over the period 2005–2018. We use a balanced panel data set and the Arellano-Bond Generalized Method of Moments dynamic panel estimation procedure. We find that corruption and transparency have a negative effect on bank profitability and bank stability. By contrast, greater economic freedom boosts profitability and banking stability. Our results show that regulation is positively related to bank profitability and its precise effects on stability depend upon the nature of the regulation. We additionally examine how our results are affected by Governance issues and the addition of 5 other European countries from outside the Eurozone. Our overall results indicate that the impact of the variables of interest is sensitive to the precise measures chosen to calculate profitability and financial stability.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2020.08.023