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Effects of Financial Soundness and Openness on Financial Development

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  • Sayyed Mahdi Ziaei

    (Xiamen University Malaysia (XMU), Malaysia)

Abstract

Using panel data estimation, we evaluate the effects of financial soundness indicators, financial openness and bank liquidity on financial development across 40 countries. According to our dynamic panel estimates, the following variables are found to significantly affect financial development: capital to asset ratio, nonperforming loans and direct foreign investment. Our result indicated that the change in capitalization ratio was the main driver of financial development. Moreover, nonperforming loan shock has a negative and significant influence on financial development. This study emphasizes the important role of financial soundness and financial openness in maintaining financial stability and development of banking system.

Suggested Citation

  • Sayyed Mahdi Ziaei, 2017. "Effects of Financial Soundness and Openness on Financial Development," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-14, December.
    • Handle: RePEc:wsi:rpbfmp:v:20:y:2017:i:04:n:s021909151750028x
    DOI: 10.1142/S021909151750028X
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    2. Maria-Eleni K. Agoraki & Georgios P. Kouretas, 2019. "The determinants of net interest margin during transition," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 1005-1029, November.

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