Bank regulation and stock market stability across countries

Walaa Wahid ElKelish and Jon Tucker

Journal of Financial Regulation and Compliance, 2016, vol. 24, issue 4, 402-419

Abstract: Purpose - 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. Design/methodology/approach - 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. Findings - 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. Originality/value - 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; G21; G28; M48; O16 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-09-2015-0049

DOI: 10.1108/JFRC-09-2015-0049

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