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Banking industry stability and investment dynamics

Author

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  • Rexford Abaidoo
  • Elvis Kwame Agyapong

Abstract

Purpose - This paper aims to evaluate how strands of differing investments influence stability in the banking industry using data from 37 countries in Sub-Sahara Africa from 2000 to 2018. Design/methodology/approach - Empirical analyses in the study were carried out using a two-step system Generalized Method of Moments estimation methodology. Findings - Empirical results suggest that generally, growth in investments by governments, foreign investments and private domestic investments have a significant positive impact in stabilizing the banking industry. The empirical estimates further suggest that macroeconomic conditions such as macroeconomic uncertainty adversely affects the liquid reserve position of banks even during periods of appreciable growth in investments. Originality/value - The authors present a different approach to the banking industry discourse. Instead of surmise the relationship with the direction of impact often emanating from the banking industry to other variables of interest or conditions, this study rather examines how investment dynamics among economies influence the stability of the banking industry overtime. In contrast to related studies, this study examines how strands of investment variables influence the stability of the banking industry. Specifically, this study is modeled to examine the extent to which variability in investment growth (using different investment variables) affect stability in the banking industry.

Suggested Citation

  • Rexford Abaidoo & Elvis Kwame Agyapong, 2021. "Banking industry stability and investment dynamics," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 30(2), pages 215-239, November.
  • Handle: RePEc:eme:jfrcpp:jfrc-06-2021-0049
    DOI: 10.1108/JFRC-06-2021-0049
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    More about this item

    Keywords

    Governance quality; Banking industry stability; Investment dynamics; Two step system GMM; C13; C26; C33; G21; E22;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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