Corporate Governance, Regulations and Banking Stability in Africa

Abstract

Existing empirical studies show that regulations and corporate governance at the firm-level improve banking stability. However, how corporate governance at the country-level shape and influence the nexus between regulations and banking stability is less documented in the empirical literature, especially in Africa. It is against this background that this study presents evidence on how country-level corporate governance structures (CLCGS) affect how financial sector transparency regulations led by the private and public sectors affect banking stability in Africa for the first time. Employing a Prais-Winsten panel of over 77 banks across 30 African economies between 2006 and 2015, the results show that CLCGSs are crucial in shaping how financial sector transparency regulations led by the private and public sector affect banking stability in Africa. Specifically, we find both positive and negative synergies between financial sector transparency regulation (led by the public and private sectors) and CLCGSs on banking stability, respectively. Additionally, the net effect results show that the negative effects of public and private sector-led financial transparency regulations on banking stability are suppressed when interacted with CLCGSs. Splitting our sample into economies with strong and weak CLCGSs, we report that public sector-led financial transparency regulation fosters banking stability in economies with strong CLCGSs, while private sector-led financial transparency fosters banking stability in economies with weak CLCGSs in Africa. These findings provide clear indications that CLCGSs restricts the taming effect of private and public sector-led financial transparency regulations on banking stability in Africa. Hence, building strong CLCGSs is critical to improving banking stability. Therefore, whether financial regulations are led by the private or public sector, strong CLCGSs are crucial for ensuring that regulations (especially public sector-led financial transparency regulation) promote banking stability. More so, economies must be selective in the implementation, adoption and establishment of financial sector transparency regulations depending on the strength of their country-level corporate governance structures.

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ORCID for Collins Ntim: orcid.org/0000-0002-1042-4056

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