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Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies

Economic Policy Uncertainty (EPU) research has grown in importance in today's highly volatile and interconnected economy. This work investigates the relationship between EPU and Financial Stability (FS) (i.e., Z-scores and non-performing loans (NPL)) with the mediating variable of governance qu...

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Autores principales: Ali, Kishwar, Hongbing, Hu, Liew, Chee Yoong, Jianguo, Du
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Springer US 2023
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10020074/
http://dx.doi.org/10.1007/s10644-023-09497-6
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author Ali, Kishwar
Hongbing, Hu
Liew, Chee Yoong
Jianguo, Du
author_facet Ali, Kishwar
Hongbing, Hu
Liew, Chee Yoong
Jianguo, Du
author_sort Ali, Kishwar
collection PubMed
description Economic Policy Uncertainty (EPU) research has grown in importance in today's highly volatile and interconnected economy. This work investigates the relationship between EPU and Financial Stability (FS) (i.e., Z-scores and non-performing loans (NPL)) with the mediating variable of governance quality through a 23-country panel data from 2005 to 2019. The System Generalized Method of Moment (SYS-GMM) is adopted to address the issue of endogeneity, which is common in panel data regression. The two-stage Sequential of the Linear Panel Data Model (SELPDM) was also used to test the robustness of the results. According to the findings, EPU has a significant negative effect on financial stability (measured by the Z-score) and a significant positive effect on financial stability in the banking industry of most developed economies (proxied by NPL). We also discovered that good governance can be used to mitigate the negative effects of EPU on financial stability; however, this influence varies depending on region, bank, and market structure, and it was significantly greater during the global financial crisis. Finally, this study can help financial managers and policymakers develop appropriate policies to understand how banks respond to EPU.
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spelling pubmed-100200742023-03-17 Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies Ali, Kishwar Hongbing, Hu Liew, Chee Yoong Jianguo, Du Econ Change Restruct Article Economic Policy Uncertainty (EPU) research has grown in importance in today's highly volatile and interconnected economy. This work investigates the relationship between EPU and Financial Stability (FS) (i.e., Z-scores and non-performing loans (NPL)) with the mediating variable of governance quality through a 23-country panel data from 2005 to 2019. The System Generalized Method of Moment (SYS-GMM) is adopted to address the issue of endogeneity, which is common in panel data regression. The two-stage Sequential of the Linear Panel Data Model (SELPDM) was also used to test the robustness of the results. According to the findings, EPU has a significant negative effect on financial stability (measured by the Z-score) and a significant positive effect on financial stability in the banking industry of most developed economies (proxied by NPL). We also discovered that good governance can be used to mitigate the negative effects of EPU on financial stability; however, this influence varies depending on region, bank, and market structure, and it was significantly greater during the global financial crisis. Finally, this study can help financial managers and policymakers develop appropriate policies to understand how banks respond to EPU. Springer US 2023-03-17 2023 /pmc/articles/PMC10020074/ http://dx.doi.org/10.1007/s10644-023-09497-6 Text en © The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2023, Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law. This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization (WHO) declaration of COVID-19 as a global pandemic.
spellingShingle Article
Ali, Kishwar
Hongbing, Hu
Liew, Chee Yoong
Jianguo, Du
Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies
title Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies
title_full Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies
title_fullStr Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies
title_full_unstemmed Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies
title_short Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies
title_sort governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies
topic Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10020074/
http://dx.doi.org/10.1007/s10644-023-09497-6
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