Does country governance and bank productivity Nexus matters?

Abstract

Purpose This study aims to examine the impact of country governance and other potential bank-specific characteristics and macroeconomic condition determinants on bank productivity in the period of 2006–2016. Design/methodology/approach The productivity level of total 167 banks selected from Malaysia, Indonesia, Brunei and Singapore are evaluated using the data envelopment analysis-based Malmquist productivity index method. A panel regression analysis framework based on ordinary least squares, a fixed effect and a random effect models then are used to identify its main determinants. Findings The empirical findings indicate that the total factor productivity changes of Islamic banks is higher than conventional banks. The liquidity and global financial crisis influence both banks’ productivity. Bank size, credit risk, market power, management efficiency and inflation merely influence Islamic banks’ productivity. On the country governance dimensions, voice and accountability are found to positively influence both banks’ productivity. Regulatory quality and rule of law (RL) significantly influences the conventional parts. Political stability and absence of violence, government effectiveness, RL and control of corruption negatively influence the banks’ productivity, but this influence is only significant for the Islamic banks. Originality/value Country governance has received surprisingly little attention in the banking industry over the past few decades. Majority of the studies that examine the effect of governance on bank performance have focused more on the micro governance dimension. Thus, to the best of the researcher’s knowledge, no study has been done to address the effect of country governance on the productivity of the Islamic and conventional banks.

Do trust and country governance affect credit growth in GCC countries?

“…They found a positive link between the previously mentioned governance indicators and bank efficiency (more efficient banks are expected to lend more). The findings further supported Kamarudin et al (2020) and Athari and Bahreini (2021), who found that enhanced RQ boosted bank performance. Lensink et al (2008) found that improved RL promoted credit growth, as did higher CC (Chortareas et al , 2012).…”

“…The number of studies using six QoG indicators has been limited. It has been indicated that QoG received very little attention during the [2007][2008] Trust and country governance GFC (Kamarudin et al, 2016(Kamarudin et al, , 2020. Other studies have used the average of the six QoG with the financing margins of Islamic banks.…”

Do Islamic versus conventional banks progress or regress in productivity level?

“…The results are then tested using a parametric (t test) and nonparametric (Mann-Whitney [Wilcoxon] and Kruskal-Wallis) test in order to determine the variances in the productivity (y-axis) of Islamic and conventional banks. This test is widely used in prior banking productivity studies [14,37]. Table 4 presents the summary statistics of data used to construct the productivity frontiers for Islamic and conventional banks.…”

The influence of earnings management on bank efficiency: the case of frontier markets

“…This paper examines its relationship between EM and efficiency in the frontier market banking sector from 2011 - 2018. The objective is to determine whether EM adversely impacts efficiency, for a decline in efficiency will stifle a firm's growth and erode the firm's competitiveness ( Kamarudin et al, 2020 ). EM's association with efficiency is particularly important in a market where banks predominately fill funding gaps ( Vo, 2020 ), and the lack of funding can impede development and expansion ( López Salazar et al, 2012 ).…”