Purpose: The aim of this study is to examine the effect of institutional quality on bank stability using bank-level data from 2010 to 2020.
Theoretical framework: The study considers institutions from the perspective of governance institutions. Accordingly, the concept of government institutions is related to the country's organizational foundation in terms of governance, implying institutional quality.
Design/methodology/approach: The study uses GMM method and also choose the Zscore as the primary variable for bank stability.
Findings: The results show that institutional quality increases the stability of banks. Moreover, with the threshold model, the results show that countries with institutional quality above the threshold will increase the stability of banks. In addition, macroeconomic and banking characteristics variables such as total assets, income diversification, quality of control, inflation, and GDP growth rate have a high significance in the model.
Research, Practical & Social implications: The study shows The study's empirical results have specific policy implications for the Government in implementing policies related to institutional quality to improve bank stability.
Originality/value: there are not many researches done to investigate institutional quality to improve bank stability. Moreover, from economic crisis, the matter of banking stability is among main concerns of many researches. Second, previous researches just focus on the aspect of corruption and ignore other aspects or other factors. That’s why authors conduct this research.
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