The transition of management quality under banking regulations and supervisory practices: a study of developing economies

Purpose This study aims to investigate how regulatory frameworks and supervisory mechanisms influence management quality in banking systems, particularly in developing countries. Design/methodology/approach Using the multi-state Markov (MSM) panel data model, the study analyzes data from 107 banking systems between 2005 and 2021. Management quality is assessed via the cost-to-income ratio (CIR), with emphasis on how regulatory variables such as activity restrictions, deposit insurance, entry barriers, capital standards and supervisory structure affect its transitions. Findings Results show that stronger supervisory authority and institutional structure have a positive impact on both the CIR and its state transitions, suggesting improved management quality under effective regulation. Research limitations/implications The main limitation of this study is its reliance on secondary cross-country data, which may involve reporting inconsistencies and diverse economic contexts. Using the CIR as the only proxy for management quality may overlook other managerial dimensions. Future studies could incorporate additional performance measures and country-specific analyses. The results indicate general patterns rather than causal relationships; therefore, generalization across regulatory settings should be done cautiously. Practical implications The findings offer practical insights for policymakers and regulators. Stronger supervision and improved institutional structures enhance efficiency and cost control. Reforms that improve transparency, capital standards and governance can promote banks' long-term sustainability, particularly in developing economies. Managers can also align internal operations with regulatory changes to improve financial performance and risk management. Social implications Stronger regulatory frameworks and higher management quality enhance public trust and financial stability, especially in developing countries. Well-managed banks provide fair, sustainable and accessible services that support economic growth, reduce inequality and strengthen resilience to shocks. This study underscores the societal importance of effective regulation in promoting inclusive and accountable banking systems. Originality/value This study goes beyond estimating average determinants of management quality by modeling it as a dynamic multi-state process. Using an MSM panel framework, we quantify how regulatory and supervisory conditions change the probability of transitioning between management-quality states. Relative to Jamali (2019), this study partially replicates the transition-based empirical logic and several regulatory and supervisory explanatory variables, while shifting the dependent process from capital adequacy to CIR-based management quality and extending the analysis to the 2005–2021 period.