Determinants of bank stability in Ethiopia: A two-step system GMM estimation

Figures & data

Table 1. Summary of variables and their expected sign

Variables	Notation	Calculation	Expected Sign
Bank Stability	Z-score	$\frac{ET{A}_{it}+RO{A}_{it}}{\sigma RO{A}_{it}}$	NA
Bank-specific Factors
Previous year bank stability	Z-scoreit-1	Z-score at the previous year	+
Liquidity ratio	LIQ	Liquid Assets/Total Customer Deposit	+
Average lending rate	BIR	Interest Income/Loan and Advance	+
Tangibility	TAN	Fixed Asset/Total Asset	+
Efficiency	EFF	Non-interest Expense/Non-interest Income	-
Share of Mobilized Capital	SMC	Total Mobilized Capital/Total Asset	+
Bank Concentration	BC	Total Asset of i^th Bank/Total Asset of Banking Industry	-
Macroeconomic Factors
GDP growth rate	GDP	The annual real Growth rate of gross domestic product	±
External Government Qualities Variables
Control of Corruption	CoCrr	COC ranges from −2.5 to 2.5, and higher values indicate higher corruption control	+
The Rule of Law	RuLaw	The rule of law index. Higher values indicate higher efficiency in law enforcement.	+

Source: Developed based on the literature

Table 2. Descriptive statistics for the variables

Variables	Obs	Mean	SD	Min	Max
Dependent Variable
Z-Score	117	10.7426	3.3272	0.2676	18.976
Independent Variables
Z-scoreit-1	100	10.8238	3.3791	0.2676	18.976
LIQ	117	0.5705	0.1258	0.2821	0.8979
BIR	117	0.1352	0.0181	0.0826	0.2124
TAN	117	0.2875	0.0158	0.0068	0.0723
EFF	117	1.4172	0.6134	0.4816	3.5472
SMC	117	0.0996	0.0419	0.0211	0.2138
BC	117	0.1674	0.4255	0.0036	2.9201
GDP	117	8.7429	1.5498	6.0566	10.3925
CoCrr	117	−0.4472	0.0577	−0.56	−0.36
RuLaw	117	−0.4625	0.0334	−0.51	0.4

Source: Author’s Computation

Table 3. Correlation Table

	ZScore	L.ZScore	LQR2	BIR	SMC	TAN	BC	CoCorr	EFF2	GDP	RuLaw
ZScore	1
L1. Zscore	0.9268	1
LQR2	0.1365	0.1526	1
BIR	−0.2423	−0.3319	0.1404	1
SMC	0.8808	0.8191	0.3987	−0.0752	1
TAN	−0.0812	−0.1235	−0.4564	0.0814	−0.2723	1
BC	−0.6206	−0.6353	0.4241	0.6057	−0.3242	−0.1022	1
CoCorr	0.0289	−0.0362	−0.3139	0.2807	−0.0714	0.1343	−0.0058	1
EFF2	−0.4842	−0.4498	−0.4991	0.4319	−0.4543	0.3782	0.2349	0.2679	1
GDP	0.0664	0.1356	0.4196	−0.4924	0.1276	−0.232	−0.0478	−0.4271	−0.4434	1
RuLaw	−0.0724	−0.1246	−0.4141	0.3992	−0.1182	0.2188	0.0369	0.1968	0.4252	−0.9354	1

Source: Author’s Computation

Table 4. Two-Step System GMM Estimation Result

Explanatory Variables	Coefficient	Standard Error	P > [t]
Z-scoreit-1	0.151***	0.0499	0.008
LIQ	−0.106	2.045	0.959
BIR	23.49***	5.537	0.001
SMC	48.59***	6.370	0.000
TAN	21.69**	8.177	0.017
BC	−2.510***	0.417	0.000
EFF	−0.976***	0.307	0.006
CoCrr	6.486***	1.637	0.001
GDP	0.459***	0.129	0.003
RuLaw	15.40***	4.156	0.002
Constant	8.499***	1.984	0.001
Number of Observations	100	A-Bond AR (2) test	0.629
F statistics	856.69 ***	Sargan test	0.782
Groups/Instruments	17/15	Hansen test	0.657
A-Bond AR (1) test	0.278

Source: Author’s computation

Note: *** p < 0.01, ** p < 0.05, * p < 0.1 show statistical significance at 1%, 5%, and 10% level, respectively. Robust Standard errors are in parentheses. P-value reported for A-Bond AR (2), Sargan, and Hansen test statistics.

Data availability statement

Available on request.