Revisiting the impact of institutional quality on post-GFC bank risk-taking: Evidence from emerging countries

Ajim Uddin, Mohammad Ashraful Ferdous Chowdhury, Sanjay Deb Sajib, Mansur Masih

Research output: Contribution to journalArticlepeer-review

50 Scopus citations

Abstract

This is the first attempt to address the impact of institutional quality on post-GFC bank risk-taking behavior. This study is conducted on 730 banks from 19 emerging countries covering the period 2011–2016. We used six indicators of good governance as a proxy for institutional quality. Both static panel and Dynamic GMM estimation are used to identify the impact of these variables on bank risk-taking; measured by Z-score. We evidenced that increasing government effectiveness, controlling corruption, and improving agents' confidence and adherence to the rule of law reduce banks' risk exposure and improve banks' stability. Besides supporting the Z-score model, the robustness test using σ(NIM) also provides evidence of the impact of regulatory quality on reducing bank risk. Surprisingly, both models tend to indicate that improving voice and accountability increase bank risk-taking in emerging countries. Furthermore, our study provides an interesting reconciliation to the major debate on the impact of size on bank risk.

Original languageEnglish (US)
Article number100659
JournalEmerging Markets Review
Volume42
DOIs
StatePublished - Mar 2020

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Economics and Econometrics

Keywords

  • Bank risk-taking
  • Corruption
  • Institutional quality
  • Legal institutions

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