Institutions, regulations, performance and stability of African banks

Abstract

This thesis consists of four independent papers preceded by the introductory chapter linked through the thesis title. The first two papers focus on determinants of bank stability, while the other two focus on the determinants of bank performance.

Paper one assesses the effects of bank compliance with Basel III liquidity and capital requirements on lending and stability. African banks complying with the liquidity threshold above median lend more but are less stable. However, banks above the median capital requirement are more stable but lend less. Compliance depend on central banks’ supervision, regulatory quality, and legal systems.

Paper two investigates how legal systems and institutions influence central banks’ provision of supervisory guidance on corporate governance, and via this channel, affect governance and stability of banks. The publication of supervisory guidance on corporate governance helps banks to improve internal governance and stability, conditional on countries’ legal traditions and institutional quality.

Paper three investigates why legal traditions matter for law development, institutions for creditors and investors, as well as the development of banking systems. The paper provides strong supports for the law and finance theory that legal traditions strongly matter for legal systems development in common law countries but provide partial support for the influence of institutions on bank systems development.

The fourth paper investigates the role of ownership on bank efficiency. A novel approach is applied which addresses the incidental parameter problem associated with Stochastic Frontier Analysis (SFA). Results show both cost and profit efficiency’ superiority of foreign and privately-owned banks.