What does this research mean for the field?

Institutional quality significantly enhances bank stability in emerging economies, as evidenced by lower non-performing loans and higher Z-Scores in countries with stronger institutions. Novelty: ClaimNovelty.SYNTHESIS. Consensus alignment: ConsensusAlignment.SUPPORTS_CONSENSUS.

What question did this study set out to answer?

The research aims to examine how institutional quality and corporate governance affect bank stability in emerging economies.

February 16, 2026Open Access

Refurbished Institutional Quality and Good Governance for Bank Stability: A Meta-Analysis of Emerging Economies

Key Points

The research aims to examine how institutional quality and corporate governance affect bank stability in emerging economies.
Conducted a meta-analysis using dynamic panel data from 2011 to 2024
Applied the generalized method of moments (GMM) approach
Assessed bank performance via non-performing loans and Z-Score
Considered various factors including institutional quality, corporate governance, and macroeconomic indicators
Strong persistence observed in non-performing loans (NPLs) and Z-Score, indicating path dependence in bank performance
Institutional quality significantly enhances bank stability, as shown by a positive Z-Score coefficient
Corporate governance and macroeconomic indicators had negative but insignificant effects on bank stability
Countries with stronger institutions showed lower NPLs and higher bank stability compared to those with weaker institutions

Abstract

In an increasingly volatile global financial environment, strong institutions and sound governance are essential for safeguarding banking stability and mitigating systemic risks in emerging economies. Across the 11 emerging economies examined, weaknesses in institutional quality and inconsistencies in governance frameworks continue to elevate credit risk and undermine financial resilience. This study investigates the effects of institutional quality (IQ) and corporate governance (CGG) on bank stability, drawing on the Financial Stability and Risk Management (FSRM) theory, which highlights robust institutions, effective risk oversight, and sound governance as core determinants of financial system strength. Using dynamic panel data from 2011–2024, the study applies the generalized method of moments (GMM) approach to assess bank performance through non-performing loans (NPLs) and Z-Score as key dependent variables. The model incorporates IQ, CGG, bank-specific characteristics (bank assets, capital adequacy, cost-to-income ratio), and macroeconomic indicators (GDP, inflation, exchange rate, real interest rate) as explanatory factors, addressing endogeneity, unobserved heterogeneity, and persistence in banking outcomes. The results reveal strong persistence in NPLs (lag = 0.965, p < 0.01) and Z-Score (lag = 0.920, p < 0.01), indicating notable path dependence in bank performance. Institutional quality significantly enhances bank stability (Z-Score coefficient = 0.073, p = 0.040), while BA shows a negative but insignificant effect (coefficient = 0.005, p = 0.432), implying that rapid asset growth without prudent risk management may weaken resilience. CGG shows negative but insignificant effects, while macroeconomic factors also appear insignificant, indicating limited short-term impact. Countries with stronger institutions, such as South Korea, display lower NPLs and higher stability, whereas weaker institutional environments like Iran, Pakistan, and Bangladesh face higher credit risk and reduced stability. Overall, the study highlights IQ and prudent balance sheet management as key to stronger bank stability, urging policymakers to reinforce institutional frameworks, tighten regulatory discipline, and ensure controlled asset growth to reduce systemic vulnerabilities.

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