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The Impact of Economic Freedom, Business Regulation and Corruption on Bank Profitability and Bank Stability: Evidence from Europe

Asteriou, D., Pilbeam, K. and Tomuleasa, I. (2016). The Impact of Economic Freedom, Business Regulation and Corruption on Bank Profitability and Bank Stability: Evidence from Europe. .

Abstract

This paper examines the impact of economic freedom, regulation, corruption and transparency on bank profitability and bank stability using a sample of 681 European financial institutions in 33 European countries over the period 2000-2012. Using unbalanced panel data and 2SLS estimation, our results show that bank performance and bank stability are negatively related, but economic freedom, regulation, corruption and transparency tend to have mixed effects at the aggregate level depending on the profitability and stability measures used. More noticeable differential effects can be detected when we disaggregate the data between the Eurozone, the non-euro European Union (EU) countries and the EU candidate countries, the size of financial institutions, the level of country income, the timing of entrance into the EU enlargement process and specialization of the banks. Our results suggest that policies promoting greater economic freedom, reducing regulation, reducing corruption and enhancing transparency need to be more targeted to reflect the diversity of the banking sector in Europe.

Publication Type: Monograph (Other)
Publisher Keywords: financial crisis, dynamic panels, economic freedom, bank regulation, transparency, corruption
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Arts & Social Sciences > Economics
URI: http://openaccess.city.ac.uk/id/eprint/16839
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