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Financial nexus: Efficiency and soundness in banking and capital markets

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  • Dima, Bogdan
  • Dincă, Marius Sorin
  • Spulbăr, Cristi

Abstract

Based on a modified version of the model used in Corvoisier and Gropp (2002) and De Guevara et al. (2005), we argue that banks' soundness, the structural characteristics and efficiency of the banking sector along with the development of the capital markets constitute a financial nexus. For a data set of 63 developed and developing countries, we find evidences that efficiency significantly modulates the linkages between concentration and soundness. We also find that capital markets' development supports a stable evolution in banking sector. For the relationship between capital markets and soundness, our findings appear to be robust for various measures of the considered variables as well as for different estimation techniques. Regarding the impact of the concentration upon soundness, the results obtained display a certain sensitivity about the way concentration is measured.

Suggested Citation

  • Dima, Bogdan & Dincă, Marius Sorin & Spulbăr, Cristi, 2014. "Financial nexus: Efficiency and soundness in banking and capital markets," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 100-124.
    • Handle: RePEc:eee:jimfin:v:47:y:2014:i:c:p:100-124
    DOI: 10.1016/j.jimonfin.2014.05.002
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    More about this item

    Keywords

    Bank concentration; Efficiency and soundness; Z-scores; Lerner index; Arellano and Bover models; Two-stages quantile regression models;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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