The Impact of Institutions on Bank Governance and Stability: Evidence from African Countries

Abstract

This paper sheds new light on how African countries' legal systems and institutions influence the governance and stability of their banks. We find that institutional factors, in particular the legal family of origin, political stability, contract enforcement and strength of investor protection promote central corporate governance reforms. Using a difference-in-difference approach, we also reveal that those reforms mediate the impact of institutions on banks. If countries have a corporate governance reform in place their banks show better internal governance and higher stability.

Determinants of Banking Stability: Evidence from Haiti’s Banking System

“…Concerning the political stability, this research is in line with Mutarindwa, Schäfer & Stephan (2018). This output could be explained by the fact that political stability tends to lead to better socioeconomic conditions, create a favorable environment for investment, with positive effects on the banking sector activities.…”

“…The quality of the institutions can have implications on banking stability. For instance, Mutarindwa, Schäfer & Stephan (2018) examine how African countries' legal system and institution have implications on the governance and stability of their banks. Employing Z-score as a measure of bank resilience (or risk-taking), they show that institutional factors, mainly the legal family of origin, political stability, contract enforcement and strength of investor protection support central corporate governance reforms.…”