Bank regulation and stock market stability across countries

Abstract

Purpose

The purpose of this paper is to investigate whether bank capital strength and external auditing requirements influenced international stock market stability during the 2007/2008 global financial crisis.

Design/methodology/approach

Bank mandatory regulation data are obtained from the World Bank database, while stock market stability is gauged for 385 listed banks across 43 countries by means of generalised least squares regression models.

Findings

The authors find that mandatory capital strength requirements and the existence of mandatory audit increase stock market stability across countries. Further, more profitable banks increase stock market stability. The results are robust to both country institutional settings and economic freedom characteristics.

Originality/value

This paper provides evidence of the impact of bank regulations on stock market stability during the global financial crisis, thereby providing a useful insight for stakeholders to enhance financial regulation and policy.

Citation

ElKelish, W.W. and Tucker, J. (2016), "Bank regulation and stock market stability across countries", Journal of Financial Regulation and Compliance, Vol. 24 No. 4, pp. 402-419. https://doi.org/10.1108/JFRC-09-2015-0049