Do banking institutions respond to incentives? Banking awards and stability evidence from an emerging economy

Abstract

This study investigates how banking awards influence stability in the banking sector of Ghana. We employ a robust random effect panel model of 30 banks between 2007 and 2014 and the results show that banking institutions respond to incentives in the form of awards. However, banking stability is weakened when previous year awards are concentrated in fewer individual banks. These imply that awards at the industry and individual bank levels promotes and weakens stability, respectively. From these findings, it is obvious that regulators of banks can rely on industry-level focused awards to reinforce stability but not on individual bank level focused awards. Also, organizers of banking awards in conjunction with regulators should structure and design banking awards to avoid concentration of awards in few banks and to be industry oriented.