Title: Bank capital, profitability and risk in BRICS banking industry

Authors: Wiem Ben Jabra; Zouheir Mighri; Faysal Mansouri

Addresses: Research Laboratory for Economy, Management and Quantitative Finance (LaREMFiQ), IHEC, University of Sousse, Route Hzamia Sahloul 3, BP n° 40, 4054 Sousse, Tunisia ' Research Laboratory for Economy, Management and Quantitative Finance (LaREMFiQ), IHEC, University of Sousse, BP n° 10, Route de la plage, Hammam Sousse 4083, Tunisia ' Research Laboratory for Economy, Management and Quantitative Finance (LaREMFiQ), IHEC, University of Sousse, Route Hzamia Sahloul 3, BP n° 40, 4054 Sousse Tunisia

Abstract: This paper analyses the relationship between bank capital, risk and profitability for the BRICS banking industry data from 2004 to 2012. We use a dynamic panel data model based on two-step GMM estimation procedure. For the sake of analysis, we differentiate between before and after crisis periods in order to highlight the impact of financial crisis on clearing up the above relationship. The main empirical results are summarised as follows: 1) capital and risk are significantly and negatively related, while capital and profitability are significantly and positively linked; 2) bank capital has the greatest positive impact on ROE measure of profitability for investment banks; 3) BRICS investment banks are likely associated with a more sound financial supervision and technology; 4) regulatory quality and institutional developments are dependent upon differences in profitability and risk; 5) Results also provide evidence that financial crisis affects considerably the relationship between capital, risk and profitability.

Keywords: bank capital; risk; profitability; BRICS countries; financial crisis; dynamic panel data; GMM; generalised method of moments; banking industry; ROE; return on equity; investment banks; regulatory quality; financial supervision; financial technology.

DOI: 10.1504/GBER.2017.080782

Global Business and Economics Review, 2017 Vol.19 No.1, pp.89 - 119

Received: 06 Feb 2015
Accepted: 22 Nov 2015

Published online: 07 Dec 2016 *

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