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Institutions and financial crises

Author

Listed:
  • Francesco Marchionne

    (Indiana University, Kelley School of Business)

  • Noemi Giampaoli

    (Polytechnic University of Marche, Department of Economics and Social Sciences,)

  • Matteo Renghini

    (LUISS "Guido Carli" University, Department of Economics and Finance)

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.

Suggested Citation

  • Francesco Marchionne & Noemi Giampaoli & Matteo Renghini, 2024. "Institutions and financial crises," Mo.Fi.R. Working Papers 187, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    • Handle: RePEc:anc:wmofir:187
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    More about this item

    Keywords

    crises; banks; institutions; governance;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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