Institutions and financial crises

Francesco Marchionne (), Noemi Giampaoli and Matteo Renghini

No 187, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper examines how institutional quality affects the probability of banking and twin crises using a panel of 138 countries from 1996 to 2017. We find that better institutions mitigate the probability of financial distress. Such a shielding effect occurs unambiguously only when a synthetic index is extracted from different proxies of institutional quality aspects. On the contrary, specific measures of institutional quality show some heterogeneities. In particular, dimensions more closely related to regulatory quality and corruption mitigation decrease the probability of financial instability, while measures oriented toward social capital may have null or perverse effects. Financial structure, cultural differences, and international agreements do not affect our findings. Results are robust to several econometric exercises.

Keywords: crises; banks; institutions; governance (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 56
Date: 2024-09
New Economics Papers: this item is included in nep-cfn, nep-fdg and nep-his
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:187

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