Year:    2012

Author:    Georgiou, Miltiades N., Kyriazis, Nicholas

Credit and Capital Markets – Kredit und Kapital, Vol. 45 (2012), Iss. 4 : pp. 531–544

Abstract

Bank Profitability, Globalisation and Barriers to Entrepreneurship. A Panel Data Analysis for Europe and the United States (1999-2007)

The crux of the present article is that if corporations (as bank clients) are profitable in a globalised economic environment and there are no barriers to entrepreneurship, banks (as lenders to these corporations) are expected to be profitable too. Thus, our proposed model is a link between globalisation, barriers to corporate entrepreneurship and bank profitability. In the present paper it is empirically shown that a reduction in barriers to corporate entrepreneurship definitely has a positive impact on banking profitability, but globalisation (measured by the „trade to GDP" index) can have either a positive impact on banking profitability under certain assumptions concerning the estimation method, or no impact at all under certain assumptions concerning the estimation method. Finally, it is shown that the other two globalisation indices - geographical concentration (trade of goods) as well as FDI - do not matter as far as banking profitability is concerned. In short, the empirical evidence shows that barriers to corporate entrepreneurship seem to be the most crucial factor for banking profitability, while globalisation measured by three different indices does not always play an important role regarding banking profitability determination. The sample covers many European countries, as well as the United States. The econometric model estimation using panel data is made feasible through the Eviews software package. It should be noted that although the present model launches an interesting discussion on the links between globalisation, barriers to entrepreneurship and bank profitability, it cannot provide conclusive evidence, since either globalisation indices are not perfect or (and) estimated regression coefficients depend on the method of estimation. However, the present paper triggers further research on this topic. (JEL L26, G3, O4, C23, G21)