Financial system

Panel data

Computer security

Literature

Generalized method of moments

China

Economics

Transparency (behavior)

Market economy

Computer science

Language change

Business

Corporate governance

Political science

Monetary economics

Profitability index

Econometrics

Finance

Economic freedom

Chinese financial system

Journal of Economic Behavior & Organization

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.

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