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Does business regulation matter for banks in the European Union?

Does business regulation matter for banks in the European Union?
Does business regulation matter for banks in the European Union?
This paper provides a comprehensive analysis of the impact of business and financial specific regulations on banks in the EU-27 over the 2004–2010 period. We employ a dataset of a wide range of business regulation indices from the “Doing Business” project of the World Bank. Results for the credit regulation indices show that the strength of creditor rights is negatively related to bank performance as measured by cost efficiency, although this effect subdues during the recent crisis period (2008–2010). On the other hand, credit information sharing improves efficiency, a result that is further strengthened during the crisis. Tax-compliance costs and entry regulation constrain bank efficiency. More stringent regulation of labour, in terms of minimum wage and dismissal costs, and insolvency regulation are positively associated with efficiency. Furthermore, regulation that protects investors from management expropriation, such as the extent of director liability, exerts a positive impact on bank efficiency and more so in the crisis years. Finally, we use interaction terms between the business regulation variables and institutional quality as measured by the rule of law and control of corruption. Results show that there are cases that institutional quality influences the individual effects of specific types of business regulation on bank efficiency.
1042-4431
278-324
Kalyvas, Antonios Nikolaos
b90c20b2-9fd4-4d5d-a123-34a193e1ca1d
Mamatzakis, Emmanuel
0f924aec-ee59-4da0-abf9-7102b6a46cfe
Kalyvas, Antonios Nikolaos
b90c20b2-9fd4-4d5d-a123-34a193e1ca1d
Mamatzakis, Emmanuel
0f924aec-ee59-4da0-abf9-7102b6a46cfe

Kalyvas, Antonios Nikolaos and Mamatzakis, Emmanuel (2014) Does business regulation matter for banks in the European Union? Journal of International Financial Markets, Institutions and Money, 32 (1), 278-324. (doi:10.1016/j.intfin.2014.06.007).

Record type: Article

Abstract

This paper provides a comprehensive analysis of the impact of business and financial specific regulations on banks in the EU-27 over the 2004–2010 period. We employ a dataset of a wide range of business regulation indices from the “Doing Business” project of the World Bank. Results for the credit regulation indices show that the strength of creditor rights is negatively related to bank performance as measured by cost efficiency, although this effect subdues during the recent crisis period (2008–2010). On the other hand, credit information sharing improves efficiency, a result that is further strengthened during the crisis. Tax-compliance costs and entry regulation constrain bank efficiency. More stringent regulation of labour, in terms of minimum wage and dismissal costs, and insolvency regulation are positively associated with efficiency. Furthermore, regulation that protects investors from management expropriation, such as the extent of director liability, exerts a positive impact on bank efficiency and more so in the crisis years. Finally, we use interaction terms between the business regulation variables and institutional quality as measured by the rule of law and control of corruption. Results show that there are cases that institutional quality influences the individual effects of specific types of business regulation on bank efficiency.

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More information

Accepted/In Press date: 26 June 2014
e-pub ahead of print date: 6 July 2014
Published date: September 2014
Organisations: Banking & Finance

Identifiers

Local EPrints ID: 410182
URI: http://eprints.soton.ac.uk/id/eprint/410182
ISSN: 1042-4431
PURE UUID: 9405a2be-ac0c-4849-9ec6-209dec230ce1
ORCID for Antonios Nikolaos Kalyvas: ORCID iD orcid.org/0000-0003-4416-7032

Catalogue record

Date deposited: 06 Jun 2017 04:02
Last modified: 27 Jan 2020 13:52

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