Bank Regulation and Stock Market Stability across Countries
Journal of Financial Regulation and Compliance, Vol. 24 No. 4, pp. 402-419. (2016)
Posted: 14 Sep 2020
Date Written: November 14, 2016
The purpose of this paper is to investigate whether bank capital strength and external auditing requirements influenced international stock market stability during the 2007/2008 global financial crisis. Bank mandatory regulation data are obtained from the World Bank database, while stock market stability is gauged for 385 listed banks across 43 countries by means of generalised least squares regression models. The authors find that mandatory capital strength requirements and the existence of mandatory audit increase stock market stability across countries. Further, more profitable banks increase stock market stability. The results are robust to both country institutional settings and economic freedom characteristics. This paper provides evidence of the impact of bank regulations on stock market stability during the global financial crisis, thereby providing a useful insight for stakeholders to enhance financial regulation and policy.
Keywords: Bank regulation, Financial crisis, Market stability, Capital strength, Mandatory audit
JEL Classification: G21, G28, M48, O16
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