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Bank regulation and stock market stability across countries

Author

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  • Walaa Wahid ElKelish
  • Jon Tucker

Abstract

Purpose - The purpose of this paper is to investigate whether bank capital strength and external auditing requirements influenced international stock market stability during the 2007/2008 global financial crisis. Design/methodology/approach - Bank mandatory regulation data are obtained from the World Bank database, while stock market stability is gauged for 385 listed banks across 43 countries by means of generalised least squares regression models. Findings - The authors find that mandatory capital strength requirements and the existence of mandatory audit increase stock market stability across countries. Further, more profitable banks increase stock market stability. The results are robust to both country institutional settings and economic freedom characteristics. Originality/value - This paper provides evidence of the impact of bank regulations on stock market stability during the global financial crisis, thereby providing a useful insight for stakeholders to enhance financial regulation and policy.

Suggested Citation

  • Walaa Wahid ElKelish & Jon Tucker, 2016. "Bank regulation and stock market stability across countries," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 24(4), pages 402-419, November.
  • Handle: RePEc:eme:jfrcpp:jfrc-09-2015-0049
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    Keywords

    Bank regulation; Financial crisis; Market stability; Capital strength; Mandatory audit; G21; G28; M48; O16;

    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
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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