188宝金博页面版

Does economic freedom fosters banks’ performance? Panel evidencefrom MalaysiaFadzlan Sufiana,b,⇑, Muzafar Shah Habibullahb,1aKhazanah Research and Investment Strategy, Khazanah Nasional Berhad, MalaysiabDepartment of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, Malaysiaa r t i c l ei n f oArticle history:Received 9 January 2010Revised 30 August 2010Accepted 30 August 2010Available online 17 September 2010Keywords:BanksEconomic freedomProfitabilityPanel regression analysisMalaysiaa b s t r a c tThe present paper provides new empirical evidence on the impact of economic freedom onbanks’ performance. The empirical analysis is confined to the Malaysian banking sectorduring the period of 1999–2007. We find that overall economic freedom and business free-dom exerts positive impacts, implying that higher (lower) freedom on the activities thatbanks can undertake and entrepreneurs to start businesses increases (reduces) banks’ prof-itability. The empirical findings seem to suggest that corruption has a corrosive impact onMalaysian banks’ profitability. Interestingly, the impact of monetary freedom is negative,demonstrating the importance of government intervention in determining the profitabilityof banks operating in the Malaysian banking sector.? 2010 Elsevier Ltd. All rights reserved.1. IntroductionThe banking sector is probably the most important financial intermediary in an economy because of the role it plays as aprovider of liquidity in monitoring services and as producers of information (Diamond and Dybvig, 1983). In most countries,banks provide essential financial services that facilitate economic growth. They lend money to start businesses, purchasehomes, secure credit for the purchase of durable consumer goods, and furnish a safe place in which societies can store theirwealth. For developing countries, improvements in the banking sector could have significant impact on the allocation offinancial resources since the sector remains, still, the most important source of financing private investment of firms, giventhe underdevelopment of the financial markets.Because of the vital role banks play in the economy, the banking sector has been singled out for special protection and it isclear why such great emphasis is placed on regulation and supervision of the banking sector (Barth et al., 2006). The regu-lation and supervision serves two main purposes. First is to safeguard the safety and soundness of the financial system. Andsecond to ensure that financial services firms meet its basic fiduciary responsibilities. Ultimately, both tasks fall under agovernment’s judiciary to enforce contracts and to protect its citizens against fraud by requiring financial institutions topublish their financial statements verified by an independent audit, so that borrowers, depositors, and other financial actorscan make informed choices. In this regard, the earlier studies by among others Houston et al. (2010), Mayer and Sussman(2001), Acemoglu et al. (2001, 2002), La Porta et al. (1998, 1999) finds a positive relationship between investor protection1815-5669/$ - see front matter ? 2010 Elsevier Ltd. All rights reserved.doi:10.1016/j.jcae.2010.09.003⇑Corresponding author at: Khazanah Research and Investment Strategy, Khazanah Nasional Berhad, Level 35, Tower 2, Petronas Twin Towers KualaLumpur City Centre, 50088 Kuala Lumpur, Malaysia. Tel.: +603 2034 0197; fax: +603 2034 0035.E-mail addresses: fadzlan.sufian@khazanah.com.my, fsufian@gmail.com (F. Sufian), muzafar@econ.upm.edu.my (M.S. Habibullah).1Address: Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor Darul Ehsan, Malaysia. Tel.:+603 8946 7744.Journal of Contemporary Accounting & Economics 6 (2010) 77–91Contents lists available at ScienceDirectJournal of ContemporaryAccounting & Economicsjournal homepage: www.elsevier.com/locate/jcae