Examining financial growth nexus of emerging European countries

Ahmad, Na isa; Azad, Md. Abul Kalam
A icle
Examining inancial g ow h nexus o eme ging Eu opean
coun ies
Re iew o Economics and Poli ical Science (REPS)
P o ided in Coope a ion wi h:
Cai o Uni e si y, Cai o
Sugges ed Ci a ion: Ahmad, Na isa; Azad, Md. Abul Kalam (2024) : Examining inancial g ow h nexus
o eme ging Eu opean coun ies, Re iew o Economics and Poli ical Science (REPS), ISSN 2631-3561,
Eme ald, Bingley, Vol. 9, Iss. 1, pp. 77-97,
h ps://doi.o g/10.1108/REPS-11-2022-0090
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h ps://hdl.handle.ne /10419/316104
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Examining inancial g ow h nexus
o eme ging Eu opean coun ies
Na isa Ahmad and Md. Abul Kalam Azad
Islamic Uni e si y o Technology, Gazipu , Bangladesh
Abs ac
Pu pose –Besides he ex ensi e esea ch on manage ial e iciency in he inancial sec o wo ldwide, eme ging
economies in Eu ope emain un apped. This esea ch sc u inises he impac o manage ial pe o mance and
compe i i e s uc u es on hei inancial indus y g ow h in e ms o se ices hey o e and abili y o lique y
s ock in capi al ma ke s.
Design/me hodology/app oach –This s udy con ains da a om selec ed eme ging Eu opean coun ies’
du ing he pe iod o 2010–2020. This s udy uses da a om he He i age Founda ion’s Index o Economic
F eedom o con ol o i m-le el indica o s. The ixed-e ec s (FE) me hod was used o explo e he nexus
be ween inancial sec o g ow h and managemen pe o mance as well as compe i i e i m s uc u e.
Findings –The indings p o ide e idence o he exis ing impac o i m indica o s on he inancial sec o ’s
g ow h. Two-s ep sys em he gene alized me hod o momen s (GMM) es ima ions a e used o he obus ness
check o he au ho s’model. Whils on a sca enge hun h ough exis ing li e a u e, he au ho s ealise ha
he e is an o e whelming lack o en husiasm in his ield.
O iginali y/ alue –Wi h he in en ion o be e assessmen , he au ho s use egula o y con ex ual a iables
o look o any possible impac s and su p isingly disco e a pa e n in he inancial g ow h nexus.
Keywo ds Managemen pe o mance, Compe i i e s uc u e, Fi m s uc u e, Eu ope
Pape ype Resea ch pape
1. In oduc ion
The pas decade has wi nessed a new e a in he economic g ow h in Eu ope. Acco ding o he
epo published by Wo ld Economic Fo um [1] (2016), Eu opean economies ha e en e ed
in o s enuous compe i ion and as a esul he wo ld is wi nessing a mo e apid buoyancy o
he economy in Eu ope. The e exis s an an eceden a ilia ion be ween inancial sec o and a
na ion’s economic g ow h which has be well ecognised by McKinnon (1973) and Schumpe e
and Backhaus (2003). Financial g ow h has long been ecognised as he key d i ing o ce in
se ing he ounda ion o he economic sec o o a coun y ha iden i ies op imis ic economic
indica o s and an icipa ed g ow h based on he expansion o indus ial en e p ises
(A ango-A ambu o e al., 2019). The g ow h in economy caused by he inancial sec o helps
he mobilisa ion o ese es om inancial ma ke s o p oduc ion ma ke s by supplying
o e abundance o inancial esou ces om sa ings ope a ions (Ayadi e al., 2015).
A common ai amongs in es o s p o e ha hey a e mo e keen o be d awn owa ds
na ions ha a e conce ned wi h he g ow h o hei economies and p oduc ion s abili y,
ne e heless, plian ideas can be d a ed o ease o adap a ion owa ds inancial g ow h
(Singh and Bee sma, 2018). Capping on his, Heijd a e al. (2019) added in hei pape ha ,
in es o s can ob ain p o i s in inancial ma ke s mo e e icien ly when he e is a s able
economy. I is essen ial o legisla o s and a bi a o s o unde s and inancial capi al ma ke
indica o s in o de o explo e and assess he economy (Ba o and U s
ua, 2017). As ongoing
Eu opean
coun ies’
inancial
g ow h nexus
77
© Na isa Ahmad and Md. Abul Kalam Azad. Published in Re iew o Economics and Poli ical Science.
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Recei ed 22 No embe 2022
Re ised 5 Ma ch 2023
Accep ed 6 Oc obe 2023
Re iew o Economics and Poli ical
Science
Vol. 9 No. 1, 2024
pp. 77-97
Eme ald Publishing Limi ed
e-ISSN: 2631-3561
p-ISSN: 2356-9980
DOI 10.1108/REPS-11-2022-0090
esea ch and de elopmen subsidises o g ow h in indus ialisa ion and he e o e he
de elopmen o capi al ma ke s, he causal ela ionship also leads o sus ainable economic
de elopmen (Heijd a e al., 2019).
The banking sec o ’s esponse o mode n business policies when looked a om he
managemen ’s pe o mance and wo ldwide challenges ha e been slow (Jeucken, 2002). P io
s udies by Yip and Bocken (2018) shed ligh o he ac ha he e is an exis ing issue o p ope
measu es o enhance he manage ’s pe o mance ou pu in his sec o wi h hei analysis on
he inancial c isis o 2007–2008 and he ailu e o he Wo ld Bank. The sus ainable policies
adop ed by manage s and policy make s o his indus y a ound he wo ld ha e been a key
playe in he c isis (Jan e al., 2019b). Resea che s like Amin and Ma imu hu (2016) d ew a
causal ela ionship be ween he ine iciency o managemen ou pu due o lack o app op ia e
ac ions needed and o he s s a ed o sc u inise he impac o sus ainable p ac ices on he
manage s’key pe o mances and he e o e leading o he inancial ou comes o his indus y
(Es eban-Sanchez e al., 2017). The inancial pe o mance in he business ield o he inancial
sec o s can be de e mined by di e en a ios indica ing he di e en business pe spec i es.
Fo ins ance, e u n on Asse s (ROA) indica es he managemen pe spec i e o he inancial
ins i u ion (Mollah and Zaman, 2015), whe eas he Ne In e es Ma gin (NIM) indica es he
indi idual ins i u ion’s p o i abili y and g ow h e iciency by aking compe i i e measu es o
achie e hei goal (Nguyen e al., 2020). Pla ono a e al. (2018) in hei s udy used inancial
sus ainabili y as an independen a iable o he inancial pe o mance which hey a gued is
dependen on he p io .
The emaining o he pape is o ganised as ollows: he second sec ion co e s he
backg ound li e a u e and hypo hesis. The hi d sec ion comp ises o me hodology, da a and
equa ions whils he esul s along wi h obus ness checks a e included in he ou h sec ion.
The i h and inal sec ion desc ibes he conclusion and possible esea ch scopes.
2. Backg ound li e a u e and hypo hesis de elopmen
2.1 E ec s o inancial in e media ies
The p ima y g oup o measu es in ou analysis con as s banks’ i m-le el pe o mances and
deposi money banks and o he inancial ins i u ions ela i e o each o he and ela i e o
g oss domes ic p oduc (GDP). The indica o s in his pa disce n amongs h ee g oups o
inancial ins i u ions [2].
(1) Cen al Banks –Encompasses he cen al bank and o he ins i u ions ha accomplish
he unc ion o he mone a y au ho i y [3].
(2) Deposi Money Banks –Encompasses all inancial ins i u ions ha ha e “liabili ies in
he o m o deposi s ans e able by check o o he wise useable in making paymen s”
(Fund, 1984).
(3) O he Financial Ins i u ions –Encompasses o he bank-like ins i u ions and non-
banking inancial ins i u ions.
2.2 Nexus g ow h and inancial in e media ies’compe i i e s uc u e
Va ious e en s udies [4] ha e co e ed he inancial c isis o he pandemic hi wo ld on s ock
ma ke pe o mance (Table 1). Goodell and Huynh (2020) used he c i e ia se in 26 h
Feb ua y, 2020 and i een indus ies wi h abno mal e u ns o ind ha many o he
legisla o ades can be ca ego ised as “ ading ahead o he ma ke ”. E en du ing he c isis
i sel , he s ocks in he USA and in Eu opean coun ies eac ominously nega i e wi h he i s
decla a ions o he dea hs (Heyden and Heyden, 2021). Chen and Yeh (2021) in hei s udy o
he pandemic hi inancial ma ke and he inancial c isis caused by he global pandemic has
REPS
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78
Sou ce Sample Yea s Indica o s
Resea ch
echnique Conclusion
A es is and
Deme iades
(1997)
Selec ed 12
Ac oss Fou
Con inen s
Based on Bank
Da a and Capi al
Ma ke s
1949–
1992
M2 o GDP
(measu e o
inancial
deepening), M2Y,
DEPY ( a io o
M2 minus
cu ency held
ou side he
banking sec o
o e GDP), LPCY
( o al c edi o
p i a e sec o
o e GDP)
Time-Se ies
Analysis,
Johansen Co-
in eg a ion
Analysis
Resul s sugges
ha he causali y
be ween inance
and g ow h
depends on he
impo ance o
ins i u ional
conside a ions and
policy di e ences
di e ing om
bank-based and
capi al ma ke
based inancial
sys ems
Yıldı ıme al.
(2013)
Selec ed 10
Eu opean
Coun ies’
Banking
Indus y
1990–
2012
Liquid Liabili ies
o GDP, M2 o
GDP
Asymme ic
G ange -
Causali y
Analysis
Resul s show ha
he causal nexus is
sensi i e o he
measu emen o
inancial
de elopmen in
eme ging Eu ope
economies
Muyambi i
and Chabae e
(2018)
Selec ed
Coun y,
Bo swana o
Empi ical
Analysis
1976–
2014
In es men o
GDP, Accele a o -
Augmen ed Index
o bank- ela ed
inancial
De elopmen
Index,
Accele a o -
Augmen ed Index
o S ock
Exchange-based
Financial
De elopmen
Index
Mul i- a ia e
Causali y Model,
ARDL Model,
Dickey-Fulle
Gene alised Leas
Squa e (DF-GLS),
G ange -
Causali y Tes ,
Bounds F- es o
Co-in eg a ion
Resul s e eal ha
i is chie ly
in es men he
d i es he bank-
ela ed and s ock
exchange-based
inancial sec o s in
he sho un
Le ine e al.
(2000)
Selec ed 74
coun ies, whe e
da a a e
a e aged o e
each o he
se en 5-yea
in e als
1960–
1995
Liquid Liabili ies,
P i a e C edi ,
Comme cial-
cen al Bank
Panel-Da a
Analysis, GMM
Dynamic Panel
Es ima o s,
C oss-sec ional
ins umen al-
a iable
es ima o
Resul s sugges
ha legal and
accoun ing e o ms
ha s eng hen
c edi o igh s,
con ac
en o cemen and
accoun ing
p ac ices can boos
inancial
de elopmen and
accele a e
economic g ow h
(con inued)
Table 1.
Li e a u e e iew o
s udies on inancial
g ow h nexus
Eu opean
coun ies’
inancial
g ow h nexus
79
demons a ed a compa a i e analysis be ween he p e-pandemic 2008 inancial c isis and he
c isis caused by he pandemic.
Li e a u e shows ha he e exis s a one-way causal ela ionship om inancial
de elopmen o a coun y o he economic g ow h (Aca a ci e al., 2007). The ole o s ock
ma ke in he de elopmen o economy has long been s udied and many esea che s ound a
posi i e e ec o he le el as well as on he g ow h (A je and Jo ano ic, 1993;Le ine and
Ze os, 1996). Howe e , he s udies ailed o p o ide any signi ican ela ionship be ween
inancial in e media ies’liabili ies and g ow h. The ime-se ies analysis and Johansen co-
in eg a ion analysis conduc ed by A es is and Deme iades (1997) demons a es he scena io
o wo na ions whe e he banking de elopmen in Ge many shows an e ec on g ow h
whe eas he s udy is solely conce ned wi h he banking indus y and no o he inancial
in e media ies.
The impac o exogenous componen s such as he inancial de elopmen o a na ion on he
o e all economic g ow h has been a ma e o discussion since he las cen u y e en be o e
Sou ce Sample Yea s Indica o s
Resea ch
echnique Conclusion
Nguyen e al.
(2020)
Selec ed
Coun y,
Vie nam o
Empi ical
Analysis
Comme cial
Bank-based
Da a
2006–
2015
Ne In e es
Ma gin, M2 o
Nominal GDP,
T ends o M2/
NGDP iden i ied
by Hod ick-
P esco il e (HP)
and Bax e –King
il e (BK)
Sys em-
Gene alised
Me hod o
Momen s,
Augmen ed
Dickey-Fulle
Tes , Fixed-
E ec s Model
Resul s indica e
ha excess
liquidi y ends o
induce banks o
educe lending
in e es a es so as
o expand c edi
supply which
nega i ely a ec s
ne in e es ma gin
and makes
mone a y policy
ansmission less
e ec i e when
policy a es
inc ease
Ono (2017) Selec ed
Coun y, Russia
o Empi ical
Analysis Based
on oil-p icing
and o eign
Exchange Ra es
1999–
2008
and
2009–
2014
M2 o Nominal
GDP, Ra io o
bank lending o
p i a e and non-
inancial public
sec o s o nominal
GDP, Real pe
capi a GDP
Vec o Au o
eg ession Model,
Modi ied
G ange -
Causali y Tes
Resul s o sub
pe iod 1 sugges s
he e is causali y
om economic
g ow h o money
supply and bank
lending. Howe e ,
in sub pe iod 2
economic g ow h
causes bank
lending whils he e
is no causali y om
money supply o
economic g ow h
which may be
ela ed o dec ease
in amoun o
in e en ion in
o ex ma ke
Sou ce(s): Table by au ho s
Table 1.
REPS
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80

Le ine e al. (2000) conduc ed hei s udy o ind ha a signi ican posi i e ela ionship
be ween inancial de elopmen and g ow h ou pu on a sample o se en y ou de eloped and
less de eloped coun ies o e a ime pe iod o 1960–1995. Rega dless o hese s udies, mos o
hem ocus on he mac o-economic pe spec i e whils a oiding he mo e in ica e de ails o
indi idual i m’s e iciency ou pu .
To success ully measu e he compe i i e s uc u e o banks, we use ne in e es ma gin
(NIM
i
) as measu e o he inancial sec o s compe i i e s uc u e as p oposed by Beck e al.
(2000) in hei a emp o p opose a new da abase on he s uc u e and de elopmen o
inancial sec o . One o he main unc ions o inancial in e media ies is o channel unds om
sa e s o in es o s al hough many ac o s may in luence ne in e es ma gin (NIM
i
), i ac s as
a measu e o e iciency p o iding a compe i i e s uc u e o he indus y (F ede ic, 2000;
Howells and Bain, 2007;Mishkin and Eakins, 2006).
H1. F om e iciency pe spec i e, a compe i i e s uc u e o he inancial in e media ies
has a posi i e impac on hei main ac i i ies.
H2. A i m’s s ock ma ke u no e a io is di ec ly a ec ed by he compe i i e s uc u e
o he inancial in e media ies.
2.3 Fi m-le el manage ial e iciency o inancial in e media ies
The p edominan esea ch esul s such as Waddock and G a es (1997) and P es on and
O’bannon (1997) which ou lined an un e ined and dissen ing ela ionship be ween he policies
adop ed by inancial in e media ies o ensu e enhanced pe o mance by manage s and
inancial pe o mance a e con o e sial (Mallin e al., 2014). This is because he s udies only
o e ed a concep ual unde s anding o i . Soy as e al. (2019) howe e , used he s akeholde s’
heo y ound a posi i e associa ion be ween p ac ices o he company di ec o s and
manage s wi h ha o he company’s inancial pe o mance. O he di e se s udies on he
managemen p ac ices and enhanced pe o mance o Islamic inancial in e media ies in he
Gul Coope a ion Council (GCC) egion ha e a signi ican posi i e impac on hei inancial
pe o mances (Pla ono a e al., 2018).
Li e a u e has ho oughly discussed enhanced manage ial policies ela ing o he inancial
pe o mances o he i ms as measu ed by ROA
i
(Ahanga , 2011;El-Chaa ani e al., 2022;
Tahe ian and Ka ampou , 2017). I is impo an o no e ha he e may be o he ac o s [5] ha
in luence inancial pe o mances o he a ious ypes o inancial in e media ies (Al-Ahdal
e al., 2020). Poo managemen p ac ices such as excessi e isk- aking o lack o anspa ency,
can ha m inancial pe o mance (Adegbi e e al., 2012). The implemen a ion o good co po a e
go e nance no only enhances isk managemen and ensu es compliance wi h egula o y
equi emen s bu also enables e icien ope a ions, leading o educed cos s and imp o ed
cus ome sa is ac ion; u he mo e, s a egic planning enables inancial in e media ies o
iden i y and pu sue p o i able business oppo uni ies whils managing isk app op ia ely
(Abobak , 2017;El-Chaa ani e al., 2022;Salehi e al., 2021)
In ela ion o he s akeholde s’ heo y and wi h a bi o p oo o posi i e ela ionship o he
nexus o heigh ened managemen e iciency and he inancial pe o mance om Gul
Coun ies’banks, ou esea ch unde akes a simila associa ion be ween he ampli ied
manage ial e iciency and inancial pe o mance o he sec o . In es iga ing he impac o
adop ing e icien app oach om a managemen pe spec i e on he inancial in e media ies
o eme ging Eu opean coun ies om he las decade will allow us o wi ness he nexus o
imp o ed managemen e iciency and inancial pe o mance om a holis ic pe spec i e o he
inancial sec o .
H3. F om a managemen pe spec i e, adop ing ampli ied e icien managemen policies
has a posi i e impac on he main ac i i ies o inancial in e media ies.
Eu opean
coun ies’
inancial
g ow h nexus
81
H4. A i m’s s ock ma ke u no e a io is posi i ely a ec ed by he adop ion o
ampli ied e icien managemen policies by he i m’s managemen .
3. Me hodology
3.1 Da a and sample
Ou s udy is based on a sample cons uc ed om he espec i e Eu opean na ion’s s ock
ma ke indexes. The sample we used o ou analysis only includes da a om inancial
in e media ies such as cen al banks, deposi money banks and o he inancial ins i u ions.
We used da a encompassing coun ies which has a mix u e o inancial in e media ies
consis ing domes ic, o eign-owned, in es men banks, secu i ies and exchange companies
e c. Ou choice o coun ies does no e e o he o e all economy o he coun ies in he
da ase a he we a emp o c ea e a con as amongs he a ious ypes o inancial sec o
ac oss Eu ope. We also use coun ies like Spain, F ance, I aly, Sweden and Ne he lands wi h
s ong inancial sec o o demons a e he compe i i e s uc u e wi hin Eu ope. O he
coun ies like Bulga ia, Czech Republic, Hunga y, Po ugal and Slo enia has ela i ely small
inancial sec o compa ed o ha o he o he coun ies comp ising o o eign and domes ic
banks and he espec i e coun y’s s ock exchange being he ocal poin o inancial
de elopmen (Fa ghe and Hallega e, 2020). This da ase encompasses in o ma ion
ega ding he inancial s uc u e, ma ke s uc u e and owne ship s uc u e o e a pe iod
om 2010 o 2020 which we e gained om Thomson Reu e s Eikon. The sample o inancial
in e media ies used is ep esen a i e o he companies in hei espec i e ma ke s. We de i e
con ex ual a iables om he publicly accessible in o ma ion a coun y le el published by
he Wo ld Bank and he He i age Founda ion [6]. Addi ionally, he da ase is limi ed om
companies which a e i ually bank up (i.e. o al equi y <0) wi h an in en ion o a oid as
many biases as possible in he inal esul s. The panel da a includes a o al o 561 i m yea
obse a ions and a mean a iance in la ion ac o (VIF) o 2.54. The sample o i ms used is
ep esen a i e o he companies in hei espec i e ma ke s.
3.2 Va iables
3.2.1 Dependan a iables. We use wo dis inguishable a iables o assess he nexus
ela ionship o he inancial sec o o he as es g owing economies in Eu ope (Table 2). The
inancial g ow h p oxy as he dependan a iable was measu ed by: (1) P i a e C edi by
Deposi Money Banks and O he Financial Ins i u ions (PCDM) (% o GDP) and (2) s ocks
aded, u no e a io o domes ic sha es (STO %).
(1) The e a e wo indica o s ha emphasises on in e media y claims on he p i a e
sec o : he a io o p i a e c edi by deposi money banks o GDP and he a io o
p i a e c edi by deposi money banks and o he inancial ins i u ions o GDP.
Bo h o hese measu esisola e c edi issued o he p i a e sec o as opposed o c edi
issued o go e nmen s and public en e p ises. Addi ionally, hey ocus on c edi issued
by in e media ies ins ead o cen al bank. They amoun one o he main ac i i ies o
inancial in e media ies, ha is, channelling sa ings o in es o s (Beck e al., 2000).
To explain u he , hese a ios allows mo e p ecision in he measu emen o he le el o c edi
being ex ended o he p i a e sec o and can he e o e assis in iden i ying any po en ial
imbalances o p oblems wi h c edi alloca ion wi hin he economy (In e na ional Mone a y
Fund. A ican, 2023). In iew o he measu es o he main ac i i ies o he inancial
in e media ies, we gene a e PCDM (% o GDP) which is he inancial esou ces p o ided o
p i a e sec o by domes ic money banks [7] as a sha e o he GDP.
REPS
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82
PCDMi ¼1
2Fi
Pei
þFi −1
Pei −1÷GDPi
Pai (1)
The alue o PCDM
i
is calcula ed using he de la ion me hod whe e, F is c edi o p i a e
sec o , P
a
is he a e age annual Consume p ice index (CPI) and P
e
is he end o pe iod CPI
[8] [9].
(2) Conside ing he s ocks aded, he u no e a io o he domes ic sha es (STO %) is
calcula ed as he a io o he alue o o al sha es aded du ing a pe iod o he
a e age eal ma ke capi alisa ion. Using he de la ion me hod o he denomina o ;
STOi ¼Ti
Pai
÷1
2Mi
Pei
þMi −1
Pei −1 (2)
Whe e, P
a
is he a e age annual CPI [10],P
e
is he end o pe iod CPI [11], T is he o al alue
aded and M is he s ock ma ke capi alisa ion. Fo inancial in e media ies, he s ock
u no e a io can impac hei p o i abili y and isk managemen (Gau e al., 2005). Fo
inancial in e media ies like b oke age i ms, a highe s ock u no e a io can indica e
inc eased ading ac i i y and as a esul mo e commission ees (Hançe lio
gulla ıe al., 2016).
Va iables De ini ion and desc ip ion Sou ces
Dependen a iables
STO S ock Ma ke Tu no e Ra io as o al alue o sha es aded du ing he
pe iod di ided by he a e age ma ke capi alisa ion o he pe iod
Alshubi i (2021)
PCDM P i a e C edi by Deposi Money Banks and O he Financial Ins i u ions
o GDP (%)
Beck e al. (2000)
Independen a iables
NIM Ne In e es Ma gin calcula ed as in e es paid deduc ed om ne e u n
on in es men o e a e age o al asse s. This is used as a measu e o he
e icien compe i i e s uc u e o he inancial in e media ies
Ha is e al. (2019)
ROA Re u n on asse s calcula ed as he ne income scaled by o al asse s, used
o measu e he e iciency o he manage s and di ec o s in he inancial
in e media ies
Jan e al. (2019a)
Explana o y and con ol a iables
Bsize Boa d size calcula ed as he na u al log o he o al numbe o boa d
membe s
Dal on e al. (1999)
Size Fi m size esembles he log o he i m’s o al asse epo ed Saona e al. (2018)
Bindep Independen Boa d Membe s (%), as a sha e o he o al numbe o boa d
membe s is used o ep esen he ex en o which he boa d decisions a e
no in luenced by inside s’in e es
Ma’aji e al. (2021)
BMee A Boa d Mee ing A endance as he mean o all he boa d mee ing
a endance conduc ed
Ti o a (2016)
FinSol Financial Sol ency calcula ed as o al equi y di ided by he o al asse
epo ed
Ha is e al. (2019)
Con ex ual a iables
RQ Regula o y Quali y Ge ged e al. (2022)
OIEF O e all Index o Economic F eedom Baa ou and O hman
(2016)
Sou ce(s): Table by au ho s
Table 2.
Desc ip ion o
a iables
Eu opean
coun ies’
inancial
g ow h nexus
83
Ins ead, i ms ha in es in s ocks (such as hedge unds, mu ual unds e c.) uses STO as an
indica o o ac i e managemen and ocus on gene a ing mo e e u ns (Yan, 2008). Las ly
STO can also be a measu e o isk managemen , a highe a io can indica e a i m is aking a
lo o isk (Pea l and Rosenbaum, 2013).
3.2.2 Independen a iables. We use wo speci ic independen a iables o ou analysis.
The i s is he measu e o e iciency, he ne in e es ma gin (NIM
i
). This amoun s o he
accoun ing alue o a bank’s ne in e es e enue as a sha e o he o al asse s and can also be
used as an indica o o he inancial sec o ’s compe i i e i m s uc u e, al hough many
ac o s may ha e an in luence on i (Beck e al., 2000). The no ion ha ne in e es ma gin
(NIM
i
) is commonly employed as a measu e o inancial in e media y’s e iciency in
gene a ing p o i s om he sp ead be ween he in e es a e paid on deposi s and he in e es
a e cha ged on loans has been a gued by esea che s in he pas (Be ge and Mes e , 1997;
Saunde s and Co ne , 2008). We calcula e ne in e es income by deduc ing in e es cos /
expense om in e es income and he e o e measu e ne in e es ma gin (NIM
i
) as a a io o
ne in e es income o he a e age ea ning asse s in a gi en inancial yea .
NIMi ¼In e es Income In e es Expenses
A e age Ea ning Asse s (3)
The second independen a iable is a ep esen a i e o he inancial pe o mance due o he
adop ion o enhanced manage ial policies con ibu ing o be e managemen e iciency and
pe o mance o he inancial in e media ies in he o m o ROA
i
om he managemen
pe spec i e (Pla ono a e al., 2018). E ec i e Managemen p ac ices, such as good co po a e
go e nance, e ec i e ope a ions and s a egic planning can lead o be e inancial
pe o mances and pu sue p o i able business oppo uni ies whils managing isks
app op ia ely in inancial in e media ies (DeYoung and Roland, 2001;Lagasio, 2018;
Sa hye, 2003).
ROAi ¼Ne Income A e Taxes
To al Asse s Repo ed (4)
3.2.3 Explana o y, con ol and con ex ual a iables. We de ise a ew explana o y, con ol
a iables and con ex ual a iables as we belie e may ha e s a is ical impac on ou
dependan a iables.
Co po a e go e nance measu es such as, boa d size (BSize
i
) calcula ed as he na u al
loga i hmic ans o ma ion o he o al numbe o boa d membe s, boa d independence
(Bindep
i
) calcula ed as pe cen age o independen boa d membe s and boa d mee ing
a endance (BMee A
i
) calcula ed as he mean o all he boa d mee ing a endance conduc ed,
all ha e explana o y impac on he nexus g ow h.
We employ wo i m-le el con ol a iables o de i e accu a e es ima ion indings
ega ding any associa ions. The size o he inancial in e media ies (Size
i
) is measu ed as he
loga i hmic ans o ma ion o he i m’s o al asse epo ed and he inancial sol ency
(FinSol
i
) o he companies a e compu ed using he o mula,
FinSol i ¼To al Sha eholde s0Equi y
To al Asse s Repo ed (5)
Finally we conside wo coun y le el con ex ual a iables ep esen ing egula o y quali y
(RQ
i
) ob ained om Wo ld Bank’s Wo ldwide Go e nmen E ec i eness Index (WGI) which
changes o e ime and coun y c. This is one o he six coun y-le el go e nance
cha ac e is ics wi h each indices anging om 2.5 o þ2.5 and akes g ea e alues as he
go e nmen a he coun y le el imp o es. The second con ex ual a iable, o e all index o
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84
Al hough no he main ocus o ou s udy, he con ol a iables (company speci ic
cha ac e is ics) ha e shown s a is ical connec ions wi h bo h he p oxies o inancial sec o ’s
g ow h. No ably, inancial sol ency (FinSol ) and boa d mee ing a endance (BMee A) o he
companies ha e shown signi ican nega i e ela ionship ac oss all h ee o ou es ima ions in
Tables 6–8. Ra he , he companies’boa d size (BSize) has shown signi ican posi i e
ela ionship wi h bo h s ock ma ke u no e a io (STO) and p i a e c edi by deposi money
banks and o he inancial ins i u ions (PCDM) ac oss all o ou es ima ions in OLS-FE, FGLS-
FE and GMM-SE (Tables 6–8). Conside ing ou con ex ual a iables, egula o y quali y o he
coun y’s go e nmen seems o ha e a signi ican impac (ei he posi i e o nega i e) on bo h
STO and PCDM o he inancial in e media ies (Tables 6 and 7). Simila ly, o e all index o
economic eedom (OIEF) also has signi ican s a is ical impac on bo h o ou dependen
a iables (STO and PCDM) as shown in Tables 6 and 7.
5. Conclusions
The esul s on he empi ical es s suppo s he hypo hesis ha bo h STO and PCDM has
ela ionship wi h he g ow h o he inancial sec o o eme ging economies in Eu ope in he
(1) (2) (3) (4)
Va iables STO STO PCDM PCDM
STO (%) 5L 0.7405*** 0.4470
(0.2424) (.)
PCDM o GDP (%) 5L 1.0011*** 1.1275
(0.0000) (.)
NIM 17.2722*** 0.0000
(4.1589) (0.0000)
ROA 903.1561 0.0000
(.) (0.0000)
RQ 88.3229 38.1403 0.0000 0.0000
(98.6122) (.) (0.0000) (0.0000)
OIEF 1.5482 30.3101 0.0000 0.0000
(9.7702) (.) (0.0000) (0.0000)
FinSol 30.4449 226.6507 0.0000 0.0000
(72.6911) (.) (0.0000) (0.0000)
BMee A 2.7206 2.4537 0.0005*** 0.1200
(8.5299) (.) (0.0000) (.)
BSize 10.4842 201.8555 0.0000 0.0000
(110.1568) (.) (0.0000) (0.0000)
Bindep (%) 43.3555 266.8322 0.0000 0.0000
(136.0432) (.) (0.0000) (0.0000)
Size 11.3048 48.9117 0.0000 0.0000
(21.2760) (.) (0.0000) (0.0000)
Cons an 810.9381 2616.0041 0.0000 0.0000
(2268.8623) (.) (0.0000) (0.0000)
Obse a ions 139 139 143 143
Numbe o iden 25 25 26 26
AR(1) 0.0993 0.0717 0.0133 0.0216
ARTes s 2 2 2 2
Hansen 0.491 0.594 0 0
Sa gen 0.0310 0.0994 0 0
Numbe o ins umen s 21 21 22 22
No e(s): S anda d e o s in pa en heses ***p< 0.01, **p< 0.05, *p< 0.1
Sou ce(s): Au ho s’calcula ions
Table 8.
Es ima ions wi h wo-
s ep sys em GMM-FE
Eu opean
coun ies’
inancial
g ow h nexus
91

las decade. The esul s also sugges ha bo h NIM (ne in e es ma gin in e ms o e iciency
h ough compe i i e s uc u e o inancial in e media ies) and ROA in e ms o e icien
managemen h ough adop ion o be e policies) has explana o y s a is ical powe o ou
p oxies STO and PCDM. The as es g owing economies in Eu ope is subjec ed o
explana o y esea ch. I is ine i able ha company size and inancial sec o hemsel es alone
a e impo an ac o s, bu he di e ence be ween he coun ies sugges ha he e is much o
his sec o ha needs mic o le el a en ion.
I is clea ha he a iable selec ed in ou esea ch has s a is ical explana o y powe ,
howe e , in mos cases ou indings does no claim o be uni o mly posi i e. Fu he esea ch
is equi ed o explain his phenomenon. In ano he si ua ion, ou esea ch may lack in
gene a ing a be e ins umen o obus ness check h ough GMM-SE o explain PCDM in
ou eg ession.
Ou esea ch explo es and con ibu es o he ex an inancial nexus g ow h li e a u e in
pe spec i e o some o he as es g owing economies in Eu ope o e he las decade. Fi s
we illus a e a pic u e o he eme ging Eu opean coun ies and hei espec i e inancial
sec o s. Second, we explo e STO as a p oxy o possible explana ion o he g ow h o
inancial g ow h and con ibu e o he exis ing deba e as well as y o iden i y ela ionship
o e icien managemen h ough inno a i e and e icien policy adop ion wi h he g ow h o
he inancial sec o h ough banks and o he inancial ins i u ions. We o e suppo owa ds
u he s udies as he ou come o ou esea ch shows p omising ou comes o he a iables
used. Ou belie lies in he usage and expe imen a ion o a ious da ase s wi h a ying geo-
poli ical landscape o disco e mo e p omising ou comes o he nexus o g ow h o inancial
sec o ’s manage ial e iciency and compe i i e s uc u e o he indi idual ins i u ions.
We look o wa d o when such s udy is conduc ed and hope ou da a collec ion and
analy ical p ocesses will p o ide help ul p eceden . Fo di e si y pu poses we use 10
coun ies howe e limi ing he numbe o inancial in e media ies o 561 gi en ha he
whole esea ch is only limi ed o he inancial sec o . We sugges cau ion whils using a
cons ic ed da ase and a oid ce ain i m s uc u es such as eal es a e in o de o a oid isk
o mul i-collinea i y.
No es
1. Eu ope’s 10 as es g owing economies jWo ld Economic Fo um (we o um.o g)
2. Fo u he cla i ica ion, please see IMF epo o he yea 1984. The h ee g oups a e in ag eemen
wi h lines 12, 22 and 42 o he In e na ional Financial S a is ics.
3. The commonly u ilised mone a y au ho i y amongs ins i u ions sepa a e han cen al banks’
balance shee a e exchange s abilisa ion. The cen al bank may also pe o m comme cial banking
asks and hese a e excluded om he cen al banks’balance shee , whe e possible, when epo ed
in In e na ional Financial S a is ics.
4. E en s udies a e join es s o ma ke e iciency and a model o expec ed e u ns (Fama, 1970). Fo
u he in o ma ion, please isi : h ps://www.sciencedi ec .com/ opics/economics-econome ics-
and- inance/e en -s udy
5. Mos common ac o s include, ma ke condi ions, egula o y en i onmen , compe i ion e c.
6. h ps://www.he i age.o g/index/abou
7. This domes ic money banks includes comme cial banks and o he inancial ins i u ions ha accep s
ans e able deposi s (e.g. demand deposi s).
8. The aw da a a e om IMF’s In e na ional Financial S a is ics. GDP is in he local cu ency (IFS line
NGDP); end o pe iod CPI (IFS line PCPI); p i a e c edi by deposi money banks (IFS line 22 and
FOSAOP); a e age annual CPI is measu e using mon hly CPI alues (IFS line PCPI).
REPS
9,1
92
9. Fo cla i ica ion please e e o “P i a e C edi by Deposi Money Banks o GDP o Uni ed S a es”
e ie ed om FRED, Fede al Rese e Bank o S . Louis; h ps:// ed.s louis ed.o g/se ies/
DDDI01USA156NWDB
10. IFS line 64.ZF ( om he IMF’s In e na ional Financial S a is ics. S anda d & Poo ’s, Global S ock
Ma ke s ac book and supplemen al S&P da a).
11. IFS line 64M.ZF o , i no a ailable, 64Q.ZF ( om he IMF’s In e na ional Financial S a is ics.
S anda d & Poo ’s, Global S ock Ma ke s ac book and supplemen al S&P da a).
12. Each o he ca ego ies a e g aded on a scale o 0–100, and a na ion’s o e all index is de i ed by
a e aging he sco es. The g ea e he alue o he index, he be e he economic eedom and,
he e o e, i s unde lying ca ego ies.
13. i.e. whe he he es ima ed a iance o esiduals is dependen on he alues o independen a iables.
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