This paper links banking system development to the colonial and legal history of African countries. Based on a sample of 40 African countries from 2000 to 2018, our empirical findings show a significant dependence of current financial institutions on the inherited legal origin and the colonization type. Findings also reveal that current financial legal institutions are not major determinants of banking system development, and that institutional development and governance quality are more important. A high share of government spending relative to GDP also positively affects banking system development in African countries.

This paper investigates the effects of ownership patterns on bank cost and profit efficiencies taking a sample of 607 commercial banks operating in 53 African countries during the period 2005-2015. Using pooled and modified true fixed effects (TFE) stochastic frontier panel approaches, the following results are obtained: First, foreign-owned banks are more profit and cost efficient than their domestic peers. Second, privately-owned banks outperform state-owned banks. These findings result not only from internal efficiencies but also from differences in other bank-level and country-level factors. Specifically, larger and listed banks with many years of operations in host African countries, and favorable macro-economic conditions improve the cost and profit efficiencies of foreign-owned and private-owned banks (foreign and domestic) compared to state-owned domestic banks. Other findings of this study show that ownership concentration (block-holding) has adverse effects for profit and cost efficiencies of banks.

This paper focuses on the identification of the causal relationship between central banks' supervisory guidance and individual bank stability. We propose and test the hypothesis that this causal relationship is mediated by the degree to which banks comply with their central bank's corporate governance recommendations. Specifically, we exploit the fact that there is considerable cross-country heterogeneity in providing supervisory guidance. Our recursive two-equation system is equivalent to an endogenous treatment effect model in which the treatment is the provision of supervisory guidance. We find that institutional factors, in particular the legal family of origin, political stability, contract enforcement and strength of investor protection promote provision of supervisory guidance. If a central bank has published supervisory guidance, local banks show better internal governance and higher stability.

This paper links banking systems development to the colonial and legal history of African countries. Specifically, we investigate the impact of differing legal traditions on the development of existing investor and creditor protection, and on African banking systems. Based on a sample of 40 African countries from 2000 to 2016, our empirical findings show a significant dependence of current financial institutions on the legal origin and the colonization type. Findings also reveal that current legal financial institutions are not the major determinants of banking system development, whereas institutional and regulatory quality significantly matter for banking system development in both common and civil law countries. Strong creditor rights reduce the cost of banking in African countries.

We assess whether compliance with Basel III’s main requirements, the Net Stable Funding Ratio (NSFR) and the risk-weighted Total Capital Ratio (TCR), matters for lending and stability of African banks. Banks with an NSFR or a TCR of at least the required minimum are defined as treatment group in the endogenous treatment estimations. Our results reveal that African banks complying with the capital threshold TCR lend more than banks from the less capitalized control group, while banks complying with the NSFR threshold lend less than their peers. A detailed analysis with sample splits reveals that complying with the capital threshold improves the Z-score and the ratio of non-performing loans (NPL ratio) only for those banks with stability levels above the median. The likelihood of African banks to comply with the Basel III thresholds is overall strongly dependent on the strengths of regulatory institutions in the home country and, in case of the capital ratio, also on the legal origin.

This thesis consists of four independent papers preceded by the introductory chapter linked through the thesis title. The first two papers focus on determinants of bank stability, while the other two focus on the determinants of bank performance.

Paper one assesses the effects of bank compliance with Basel III liquidity and capital requirements on lending and stability. African banks complying with the liquidity threshold above median lend more but are less stable. However, banks above the median capital requirement are more stable but lend less. Compliance depend on central banks’ supervision, regulatory quality, and legal systems.

Paper two investigates how legal systems and institutions influence central banks’ provision of supervisory guidance on corporate governance, and via this channel, affect governance and stability of banks. The publication of supervisory guidance on corporate governance helps banks to improve internal governance and stability, conditional on countries’ legal traditions and institutional quality.

Paper three investigates why legal traditions matter for law development, institutions for creditors and investors, as well as the development of banking systems. The paper provides strong supports for the law and finance theory that legal traditions strongly matter for legal systems development in common law countries but provide partial support for the influence of institutions on bank systems development.

The fourth paper investigates the role of ownership on bank efficiency. A novel approach is applied which addresses the incidental parameter problem associated with Stochastic Frontier Analysis (SFA). Results show both cost and profit efficiency’ superiority of foreign and privately-owned banks.

Avhandlingen består av fyra oberoende artiklar samt en introduktion som binder samman avhandlingen. De två första artiklarna fokuserar på determinanter av bankstabilitet, medan de andra två fokuserar på determinanterna för bankprestanda.

I den första artikeln utvärderas effekterna av bankernas uppfyllelse av Basel III:s likviditets och kapitalkrav på utlåning och stabilitet. Afrikanska banker som ligger på medianen vad gäller likviditet lånar ut mer, men är mindre stabila. Bankerna som ligger över mediankapitalkravet är stabila men lånar ut mindre. Bankernas benägenhet att efterleva kraven beror på centralbankernas tillsyn, regelverkets kvalitet och rättssystemet.

I artikel två undersöks hur rättssystem och institutioner påverkar centralbankernas tillhandahållande av tillsynsriktlinjer för bolagsstyrning, och hur bankernas styrning och stabilitet påverkas av dessa. Offentliggörandet av tillsynsriktlinjer för bolagsstyrning hjälper bankerna att förbättra den interna styrningen och stabiliteten, avhängigt ländernas rättsliga traditioner och institutionella kvalitet.

I artikel tre undersöks varför juridiska traditioner spelar roll för lagarnas utveckling, för institutioner för borgenärer och investerare samt för utvecklingen av banksystemet. Artikeln ger starkt stöd för de teorier inom juridik och finans som säger att juridiska traditioner spelar stor roll för utvecklingen av rättssystemet i länder med sedvanerättsregler, men ger bara delvis stöd för institutionernas inflytande på banksystemets utveckling.

Det fjärde artikeln studeras hur ägarförhållanden påverkar en banks effektivitet. Ett nytt tillvägagångssätt tillämpas som adresserar det tillfälliga parameterproblemet associerat med Stokastisk gränsanalys (SFA). Resultatet visar på överlägsen kostnads- och vinsteffektivitet hos både utländska och privatägda banker.

This paper sheds new light on how African countries’ legal systems and institutions influence the governance and stability of their banks. We find that institutional factors, in particular the legal family of origin, political stability, contract enforcement and strength of investor protection promote central corporate governance reforms. Using a difference-in-difference approach, we also reveal that those reforms mediate the impact of institutions on banks. If countries have a corporate governance reform in place their banks show better internal governance and higher stability.

This paper links banking systems development to the historical development of African countries. Specifically, it investigates the impact of differing legal traditions on the development of existing legal systems and institutions, and on African banking systems. Using probit and a recursive equation model estimated with three-stage least squares (3SLS) on a sample of African countries from 2000 to 2016, results show that legal origins strongly matter for the development of legal institutions particularly in countries using common law as their legal tradition. Findings also reveal that strong creditor rights improve banking development in both common and civil law countries. Contract enforcement significantly reduces the cost of banking in African countries.

This paper sheds new light on how African countries’ legal systems and institutions influence central banks’ provision of supervisory guidance on corporate governance, and via this channel, affect governance and stability of local banks. Specifically, we exploit the fact that there is considerable cross-country heterogeneity in providing supervisory guidance. Our recursive two-equation system is equivalent to an endogenous treatment effect model in which the treatment is the provision of supervisory guidance. We find that institutional factors, in particular the legal family of origin, political stability, contract enforcement and strength of investor protection promote provision of supervisory guidance. If a central bank has published supervisory guidance local banks show better internal governance and higher stability.