This study aims to draw the link between bank stability and green growth, towards the broader conversation of environmental sustainability. Furthermore, this study investigates the moderating role of governance effectiveness in the nexus between stability of the banking sector and green growth.
This study uses panel data from the period 2000 to 2022, from a sample of economies in Africa. The econometric technique applied for the empirical analysis is the two-step system generalized method of moments, supported by ordinary least squares with Driscoll and Kray standard errors.
Theoretically, this study supports the growth-led finance hypothesis and sustainable finance. The findings show that green growth (sustainable production) improves the stability of the banking industry in Africa by strengthening the robustness of the industry, improving liquidity, enhancing capital adequacy and reducing rate of loan default. Again, the moderation analysis indicates that government effectiveness positively influences the effect of green growth on bank stability in Africa.
This study delves into the all-important conversation of environmental sustainability by specifically examining the association between green growth and the stability of the banking sector and further evaluates the role of governance effectiveness on the relationships compared to other studies on the subject.
