The determinants of performance in the Eurozone banking sector: Core versus periphery Eurozone economies

Abstract

In the present study we provide a thorough analysis of the effects that a group of bank‐specific as well as industry‐specific determinants along with the regulatory framework developed under the three pillars of Basel II agreement (capital stringency, official disciplinary power and private monitoring) have on the performance of Eurozone banking sector over the period 2007–2016. To this end, we conduct a systematic comparative analysis of the determinants of the performance of the banking sector in periphery Eurozone countries (Greece, Italy, Portugal, Spain) versus banks operating in core Eurozone economies (Germany, France). We provide evidence that is consistent with the argument that banks financed with short‐run capital market funding are more fragile. A further finding of our analysis shows that banks operating in countries which have a more restrictive regulatory framework on banking activities perform better. In addition, it is shown that the better‐performing banks have more equity. Finally, the estimation of the appropriate dynamic models we argue that bank performance is affected by bank‐specific determinants like equity capital and bank size, while the regulatory framework as well as macroeconomic variables play a crucial role.

Asymmetries in the Euro area banking profitability

“…In terms of LLP, we observe a significant negative and a rather strong effect on both profitability measures, in contrast with Agoraki et al (2021) that found a positive effect of LLP on bank performance given by stocks return. In our study, an increase of 1 p.p.…”

“…By controlling for the potential profitability differences between peripheral and core countries' banking systems, we fill a relevant gap in the literature that, to the best of our knowledge, was only addressed by Agoraki et al (2021). Their study analyses the effects that a group of bank-specific and industry-specific determinants along with the regulatory framework have on bank performance, measured by stock returns, of periphery Eurozone countries (Greece, Italy, Spain and Portugal) and core Eurozone countries (France and Germany).…”

The trilogy between CEO overpower, green credit, and core competence: Evidence from commercial banks in Vietnam

“…Therefore, employing high proportions of them could lead to low profitability. Agoraki et al [ 42 ] also suggest that bank profits are negatively related to their leverage.…”

Solvency determinants: evidence from the Takaful insurance industry

“…ROA: Profitability represents a difficult concept in terms of its measurement and definition (Almaqtari et al 2019;Teixeira et al 2020). As shown in the academic literature and professional and industrial reports, there is no single, universallyrecognised financial formula to measure profitability (Burca et al 2014;Agoraki et al 2019). Academics have used a range of different, though related, mathematical expressions to measure profitability (Bikker and Vervliet 2018).…”