Determinants of off-balance-sheet activities in banking: evidence from a cross-country panel

Purpose This study aims to investigate the determinants of banks’ off-balance-sheet (OBS) activities across developed and emerging economies during the post-global financial crisis period. Design/methodology/approach Using a panel of 1,295 listed banks from 75 countries over 2010–2019, the study employs bank fixed-effects regressions, instrumental-variable (2SLS) estimation, and System generalized methods of moments (GMM) dynamic panel models to address unobserved heterogeneity, endogeneity and dynamic persistence. Cross-country heterogeneity is further examined through subsample and interaction analyses. Findings In the baseline fixed-effects models, bank financial stability, profitability and lower credit risk are positively associated with OBS activity levels. However, these associations weaken considerably under 2SLS and System GMM estimation, suggesting that the market-discipline pattern is associative rather than causal. In the baseline fixed-effects models, institutional quality, deposits and lending are positively associated with OBS activity, while financial development is negatively associated with it. The cross-country analysis shows significant differences among countries. Market discipline is positively associated with OBS in developed countries; however, institutional quality is positively associated with OBS activity in emerging economies. Research limitations/implications The study contributes to research on banking and credit risk-taking, financial intermediation and institutional development by showing the determinants of OBS activity by bank- and institution-level factors. Originality/value The study also provides new, large-scale international data on the determinants of OBS activities by jointly testing predictions from market discipline, adverse selection and institutional perspectives within a single cross-country empirical framework.