Year: 2024
Type: article
Abstract: Using the GMM framework, this paper examines the nexus between capital and profitability in the presence of economic freedom using annual data of US banks ranging from 2002 to 2022. consistent with both the financial stability and regulatory hypotheses, the present study's empirical findings reveal that economic freedom exerts a positive moderating influence on the relationship between bank capital ratio and profitability. The findings are heterogeneous across banks' specific characteristics and market conditions. Furthermore, the results are robust to alternative proxies of profitability. The study's finding is beneficial for policymakers and regulators as liberalization is not always adversely impact the economy; rather, it's a double-edged sword, and they must maintain that delicate balance. The conclusions of this study have meaningful implications for senior bankers and policymakers when formulating strategies for preserving bank value. Specifically, it highlights the importance of considering the interactive role of economic freedom in their decision-making process.
Source: Heliyon
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $2,100
Funders: Ministry of Science and Technology of the People's Republic of China, Research Grants Council, University Grants Committee, China Medical University Hospital, Asia University, China Medical University, Chongqing Xinqiao Hospital, Second Affiliated Hospital of Army Medical University, Asia Research Center, Nankai University
OpenAlex ID: W4401015723