Does institutional quality matters in the relationship between banks’ ownership and banking stability? Evidence from the MENA region

Purpose The debate on how banks’ ownership affects banking stability and risk-taking is still ongoing, and the large empirical literature focused on the association between them is still inconclusive. This study aims to investigate the relationship between different bank ownership structures and banking stability in the Middle East and North Africa (MENA) region, in addition to exploring the mediating role of institutional quality in this relationship. Design/methodology/approach This paper uses a panel data set of banks operating in 15 MENA emerging economies and uses the generalized method of moments estimator, the least squares dummy variable corrected (LSDVC) approach and the quantile regression approach (QR) over the period 1999–2022. Findings The empirical results indicate that foreign ownership and public ownership have a negative impact on banking stability, which provides new evidence supporting the home-field advantage hypothesis. Furthermore, by assessing the significance of institutional factors for banking stability, it reveals that strict control of corruption, political stability, good quality of regulations and strong rule of law all improve banking stability even under foreign and public ownership. Practical implications This study adds important insights for MENA regulators and the banking sector, showing that the prevailing institutional factors can soften the impact of foreign and public ownership of banks operating in the MENA economies. Originality/value This study helps to close the gap in literature by comparing the global advantage and home-field advantage hypotheses to assess the impact of foreign and state ownership on banking stability in local, as well as in developing contexts. It also includes key factors of institutional quality like control of corruption, political stability, regulatory quality and the rule of law, shedding light on how these factors either mitigate or enhance the effects of ownership structures.