International Review of Financial Analysis 87 (2023) 102603

Contents lists available at ScienceDirect

International Review of Financial Analysis

journal homepage: www.elsevier.com/locate/irfa

Geopolitical, economic uncertainty and bank risk: Do CEO power and board
strength matter?
Mohsin Shabir a, Ping Jiang b, Yasir Shahab c, *, Peng Wang d
a
Shandong University of Finance and Economics, Jinan, Shandong province, China
b
University of International Business and Economics, Beijing, China
c
School of Accounting, Xijing University, Xi'an, Shaanxi, China
d
Southampton Business School, University of Southampton, Southampton, United Kingdom

A R T I C L E I N F O A B S T R A C T

JEL classification: This study examines whether economic and geopolitical uncertainties affect bank risk. Using a sample of 574
C33 banks from 19 countries for 2009–2020, our findings show that increasing economic and geopolitical uncertainty
D81 significantly constrain the bank risk and worsens its stability. Furthermore, we explore whether CEO power and
G21
board strength have played a moderate role in mitigating the adverse impact of economic and geopolitical
G28
G32
uncertainty on bank risk. The finding shows that CEOs' power and strong boards improve the bank's performance
M14 and minimize the adverse effects of economic and geopolitical uncertainty on bank risk. The results are robust to
Keywords:
alternative bank risk, economic uncertainty, and geopolitical uncertainty measures and address endogeneity.
Geopolitical uncertainty Additional analyses on bank heterogeneity show that the bank stability of listed, domestic and private-owned
Economic uncertainty banks is more immune to such uncertainty.
Bank risk
Corporate governance
CEO power
Board strength

1. Introduction
Today's geopolitical environment is nothing like what we have seen
in the past (Shen et al., 2021; Shen, Liang, Li, Liu, & Lu, 2021). More
recently, the role of geopolitical and economic uncertainty has also been
emphasized as a key driver of the state of the economy (Gholipour,
2019; Gulen & Ion, 2016; Jens, 2017). As a result, their effects on
various economic activities have received increasing attention from
researchers and academia, and they highlight the adverse impacts of
geopolitical and economic uncertainty on economic growth in general
and the financial sector in particular (Demir & Danisman, 2021; Phan,
Iyke, Sharma, & Affandi, 2021; Phan, Tran, & Iyke, 2021; Salisu,
Cuñado, & Gupta, 2022; Tabash, Farooq, Ashfaq, & Tiwari, 2022; Wang,
Lee, & Chen, 2022). Especially, their effects on the banking sector sta­
bility has gained much attention as a safe and stable banking system
reflects a sound financial system and ensures the optimal allocation of
capital resources (Bhatia & Gulati, 2021; Biswas & Kumar, 2022). It is
essential as it reinforces trust in the system and prevents costly banking
system crises, which can destabilize an economy (Jahn & Kick, 2012).
Although some researchers have investigated how geopolitical and
economic uncertainty impacts bank risk and stability (Bilgin, Danisman,
Demir, & Tarazi, 2021; Demir & Danisman, 2021; Wu, Yao, Chen, &
Jeon, 2020a, 2020b; Nguyen, 2021; Shabir, Jiang, Bakhsh, & Zhao,
2021; Phan, Iyke, et al., 2021, Phan, Tran, & Iyke, 2021), none has
considered corporate governance aspects (e.g., CEO power and board
strength). A powerful CEO and strong board play a vital role in the
bank's strategic decision-making process, capital allocation, and deter­
mining its future direction (Brogi & Lagasio, 2022), especially in the face
of high economic and geopolitical uncertainties. However, current
literature suggests that CEOs and board structures have unique man­
agement styles across the countries based on their different regulations,
stock market settings, and investment practices (Y. Shen, 2021).
Therefore, this study explores the role of CEO power and board strength
in the potential impact on banking stability due to the flurry of

* Corresponding author.
E-mail addresses: mohsin.shabir25@gmail.com (M. Shabir), ping.jiang@uibe.edu.cn (P. Jiang), 20180223@xijing.edu.cn (Y. Shahab), peng.wang@soton.ac.uk
(P. Wang).

https://doi.org/10.1016/j.irfa.2023.102603
Received 8 July 2022; Received in revised form 30 December 2022; Accepted 20 February 2023
Available online 24 February 2023
1057-5219/© 2023 Elsevier Inc. All rights reserved.
M. Shabir et al.
geopolitical change and political upheaval.
Geopolitical and economic uncertainty have the most important
factors influencing investment decisions and risk-taking activities
(Gholipour, 2019; Lee & Lee, 2020). The existing literature has shown
that uncertainty regarding geopolitical tensions, military conflicts, po­
litical instability, and quality of policy formulation and execution
decline bank credit growth (Demir & Danisman, 2021). Regarding the
effect of geopolitical uncertainty risks, Phan, Iyke, et al. (2021) and
Zhou, Gozgor, Huang, and Keung Lau (2020) reveal that geopolitical
uncertainty risk is adversely related to investor sentiments and signifi­
cantly reduces domestic credit to the private sector. Investors become
more concerned about losing money, so they restructure their portfolios
by shifting investments from risky assets to safe investments, thus
decreasing liquidity, especially in banks (; Phan, Tran, & Iyke, 2021).
While Shleifer and Vishny (2010) introduced a theory of unstable
banking, which suggests that investor sentiment affects banks, and any
source of fluctuations in investor sentiment can seriously damage the
bank's stability. In addition, Demir and Danisman (2021), Jens (2017),
Phan, Iyke, et al. (2021), Phan, Tran, and Iyke (2021), and Zhou et al.
(2020) argue that geopolitical uncertainty risk is associated with
changes in investor sentiment, lower bank credit growth, volatility in
profits, and a higher probability of default. Therefore, it could lead to
more risk and instability in banks.
Moreover, recently some studies suggested that increasing uncer­
tainty creates fear in the financial markets, decreasing liquidity provi­
sion (Nagel, 2012; Phan, Iyke, et al., 2021; Phan, Tran, & Iyke, 2021).
Wu, Yao, Chen and Jeon (2021) argued that as uncertainty grows, banks
normally suspend their credit provisioning or prolong the waiting time
for the release of new loans due to incomplete information issues. These
findings seem consistent with the hypothesis of “the option value of
waiting” for individual banks. Furthermore, they likely cut loan interest
rates due to the lower demand for credit and the increased premium
requirements on banks' external funding costs in uncertain periods,
which may reduce banks' interest rate spreads. As a result, uncertainty
will likely lead to a stronger incentive to “search for yield,” causing bank
credit to be increasingly allocated toward “high-risk, high-return” pro­
jects(Wu, Yao, Chen, & Jeon, 2021).
Besides this, banks are naturally more ambiguous than other busi­
nesses because the risk linked with their intermediaries is difficult to
understand from the outside (Nguyen, 2021). Recently, some re­
searchers have pointed out that high geopolitical and economic uncer­
tainty hinders the ability to precisely estimate investment returns
(Nguyen, 2021), reducing bank credit and profitability (Demir & Dan­
isman, 2021). As a result, when bank credit growth and profits decline
during high geopolitical and economic uncertainties, bank managers
may have more incentives for “high-risk, high-return” projects, which
likely enhance the overall bank risk (Nguyen, 2021). Therefore, in this
context, some researchers argue that corporate governance mechanisms
have not served their purpose in appropriately protecting stakeholders'
interests, thus increasing risk without proper management (Fernandes,
Farinha, Martins, & Mateus, 2021). Therefore, in the context of high
geopolitical and economic uncertainty, the importance of risk-taking
behavior and internal governance mechanisms of the bank has been
given renewed emphasis. It is highly relevant to study whether bank
governance affects the risk taken, particularly regarding CEO power and
board strength. Because a powerful CEO and strong board might effec­
tively prevent excessive risk-taking, increase risk governance practices,
enhance loss absorption capacity and make the risk profile of banks
more visible to the public.
The main findings of this paper are summarized as follows. First,
using a sample of 574 banks from 19 countries for 2009–2020, we find
that increasing geopolitical and economic uncertainty significantly en­
hances the bank risk and worsens its stability. Moreover, we expanded
our study to consider whether CEO power and board strength have
played a moderate role in mitigating the adverse impact of economic
and geopolitical uncertainty on bank risk. We have used the different
2
International Review of Financial Analysis 87 (2023) 102603
measures for CEO power (e.g., CEO duality, CEO tenure, CEO founder,
CEO ownership) and board strength (e.g., the board size, independent
directors, female directors, and foreign directors). Besides this, we also
extract components by using the data reduction method Principle
Component Analysis (PCA) to combine these variables into a one-
dimensional index for CEO power and board strength separately. The
results show that powerful CEOs and strong bank boards play a crucial
role in mitigating the adverse effects of economic and geopolitical un­
certainty on bank risk. Furthermore, we perform various robustness
checks, take the additional bank risk proxies, use the alternative eco­
nomic and geopolitical uncertainty measure, address endogeneity
(GMM and 2SLS estimations) and find consistent results. In addition, for
a more comprehensive analysis, we analyze the consequence of bank-
level heterogeneity and other bank characteristics, which show that
the risk of listed banks vs. unlisted banks, domestic banks vs. foreign
banks, and state-owned banks vs. private-owned banks are responses in
different ways by geopolitical and economic uncertainty.
This study contributes to the existing literature in two important
ways. Firstly, the existing studies mainly focus on the effects of various
macro-uncertainty indicators (such as EPU and political risk) on bank
risk and stability (Chi & Li, 2017; Karadima & Louri, 2021; Shabir et al.,
2021; Zhang, Li, & Ortiz, 2021), not geopolitical risk. Recently, there has
been a growing awareness that markets are linked not only to economic
factors but also to geopolitical uncertainty (such as terrorist attacks,
political upheavals, military conflicts, and geopolitical tensions) that
cause shocks (Lee, Lee, & Li, 2021). These are considered the main
factors influencing business cycles and financial market dynamics (Sal­
isu et al., 2022). Our study expands the current literature on bank risk
determinants and enhances the growing research on geopolitical risk's
real and financial consequences. This empirical exploit is necessary
because, recently, some researchers have shown that the geopolitical
uncertainty risk significantly differs from other forms of uncertainty
(Demir & Danisman, 2021); therefore, it shows different consequences
for bank risk and stability. For example, Demir and Danisman (2021)
find that economic uncertainty significantly decreases bank lending,
whereas geopolitical risk does not affect it. This may be because that
geopolitical risk varies from other types of risk for the following reasons;
(i) it includes all national and international concerns and is significantly
distinctive from other political instability measure, which primarily
concentrates on domestic political problems (Demir & Danisman, 2021;
Phan, Iyke, et al., 2021; Phan, Tran, & Iyke, 2021). (ii) it captures the
rare but devastating incidents that can remain invisible for decades
(Phan, Iyke, et al., 2021; Phan, Tran, & Iyke, 2021). (iii) geopolitical
incidents are more challenging to predict (e.g., terrorist operations) than
other macroeconomic events. Hence, the term Geopolitical Risk Index
captures a broader array of exogenous global uncertainties. Therefore
this study differs from the previous literature because Karadima and
Louri (2021) and Chi and Li, Munir, and Abd Karim (2017) analyze the
impact of EPU on bank risk (e.g., Credit risk and non-performing loans),
while Wu et al. (2020a, 2020b) and Zhang, Li, Xu, and Ortiz (2021) used
the conditional variance, which is estimated by the GARCH (1, 1), as a
proxy of economic uncertainty. In contrast, our study proceeds from
these references and contributes to the literature by examining and
comparing the geopolitical and economic uncertainty's impact on indi­
vidual banks' risk. In this regard, our study uses the Geopolitical Risk
Index and World Uncertainty Index to measure geopolitical and eco­
nomic uncertainty, respectively. There is a fundamental difference be­
tween these two indices in terms of estimations and nature, so they deal
with different aspects of uncertainty (Demir & Danisman, 2021). Sec­
ondly, this study represents the first attempt to examine the role of CEO
power and board strength on geopolitical and economic uncertainty's
impact on bank risk.
This paper is organized as follows. Section 2 briefly reviews the
related literature and develops our hypotheses. Section 3 describes the
data and empirical methodology. Section 4 reports our baseline model's
estimation results. Section 5 presents a series of robustness checks.
M. Shabir et al.
Section 6 concludes.
2. Literature review and hypotheses development
The current literature has shown that uncertainty is considered the
driving force behind business fluctuations and adversely impacts eco­
nomic activities, slowing down its recovery (Baker, Bloom, & Davis,
2016a, 2016b; Shabir et al., 2021). Besides this, the growing uncertainty
not only affects the sentiments of market participants and demands
higher compensation but also significantly impacts corporate strategies
(Khoo & Cheung, 2021) through its impacts on corporate investment
(Dixit & Pindyck, 2012), research and development (R&D) (Bloom,
2007; Y. Wang, Wei, & Song, 2017), corporate cash holdings (Demir &
Ersan, 2017; Goodell, Goyal, & Urquhart, 2021; Xu, Chen, Xu, & Chan,
2016), trade credit (Jory, Khieu, Ngo, & Phan, 2020), business opera­
tions(Shi, Qiu, & Fan, 2020), performance (Ahsan & Qureshi, 2021),
corporate credit spread (Kaviani, Kryzanowski, Maleki, & Savor, 2020),
asset pricing (Brogaard & Detzel, 2015a, 2015b), capital structures
(Zhang, Han, Pan, & Huang, 2015), dividend policy (Farooq & Ahmed,
2019), mergers and acquisitions (M&A) (Sha, Kang, & Wang, 2020),
initial public offerings(Çolak, Durnev, & Qian, 2017), among others.
However, few researchers have recently demonstrated that uncer­
tainty destructively impacts financial systems, particularly banking
(Ozili, 2021; Shabir et al., 2021). The banking industry is extremely
sensitive to uncertainty, which directly influences the bank's compe­
tence and willingness to make loan decisions and indirectly disturbs its
creditors' repayment (Shabir et al., 2021). Therefore, geopolitical and
economic uncertainty might affect the bank's risk in three main channels
(Nguyen, 2021; Wu, Yan, Chen, & Jeon, 2022).
First, geopolitical and economic uncertainty affects the financial
performance of banks through lower profits and bank value, which
result from low demand and supply during high uncertainty (He & Niu,
2017). Recently Killins, Johnk, and Egly (2020) pointed out that high
financial regulation policy uncertainty (FRPU) adversely affects the
bank's profit. The theoretical literature on uncertainty dates back to four
decades ago. The investment model under the uncertainty introduced by
Bernanke (1983) described the delay of firm investment during higher
uncertainty. The real options theory reveals that an absence of complete
information increases the probability of making wrong decisions during
higher uncertainty (Pindyck, 1988). Consequently, the option value of a
postponement in investment increases during uncertainty, and firms
prefer to wait to avoid making costly mistakes. Bloom, Bond, and Van
Reenen (2007) demonstrate that high uncertainty enhances real option
value and encourages companies to delay hiring, productivity, and in­
vestment, especially when the investment decisions are costly to reverse
(Dixit & Pindyck, 2012; Gulen & Ion, 2016). Besides this, geopolitical
and economic uncertainty can considerably raise risk premiums on
several financial markets, thus increasing the cost of borrowing and
declining productivity, ultimately leading to a weaker economies (Al-
Thaqeb & Algharabali, 2019; Nguyen, 2021). These effects have led to a
decline in aggregate credit demand and downward pressure on lending
rates, harmfully impacting banks' credit growth (Shabir et al., 2021) and
finally eroding bank profitability (Al-Thaqeb & Algharabali, 2019;
Killins et al., 2020; Ozili, 2021). For these reasons, bank managers may
have been encouraged to switch to high-risk activities, leading to higher
financial instability (Dell’Ariccia, Laeven, & Marquez, 2014; Nguyen,
2021).
Secondly, geopolitical and economic uncertainty may affect banks
through their loan portfolio (Demir & Danisman, 2021; Ozili, 2021). The
bank is one of the key sources of finance for a firm (Liu & Wang, 2022;
Shabir et al., 2021). Recently, empirical evidence shows that higher
geopolitical and economic uncertainty devastatingly affects firms'
sources of financing, both the equity and the debt markets (Chan, Saffar,
& Wei, 2021; Khoo & Cheung, 2021; Waisman, Ye, & Zhu, 2015).
Geopolitical and economic uncertainty increases the cost of capital by
raising information asymmetry and decreasing the quality of firms'
3
International Review of Financial Analysis 87 (2023) 102603
internal controls (Liu & Wang, 2022). Some studies proposed that
geopolitical and economic uncertainty raises the cost of debt, decreases
firm effectiveness, and reduces stock return, leading to high cash flow
volatility. It adversely impacts borrowers' capability to pay back their
debt and raises default risks (Al-Thaqeb & Algharabali, 2019; Gholipour,
2019; Julio & Yook, 2012; Panousi & Papanikolaou, 2012). This could
eventually turn into non-performing loans and increase banks' overall
risk profile (Bilgin et al., 2021).
Lastly, some scholars have pointed to the herding behavior in the
banking system, especially in banks' lending behavior (Nguyen, 2021;
Shabir et al., 2021). They argued that the uniformity of lending in the
banking system during extreme uncertainty could risk the bank's sta­
bility (Nguyen, 2021; Shabir et al., 2021). This can be described by
increasing geopolitical and economic uncertainty and increasing infor­
mation asymmetry between banks and borrowers (Ng, Saffar, & Zhang,
2020). This makes it more difficult for banks to estimate the uncertainty
of the firm's future (Nguyen, 2021). Therefore they keep homogeneous
investment strategies to their peer. It may be because the bank either
shares similar info or deliberately follows its peers' lending and invest­
ment strategies due to the unavailability of accurate information
(Nguyen, 2021; Shabir et al., 2021). As a result, they can miscalculate
the whole risk level and overinvest in high-risk projects. Despite this, the
bank's management is well informed of the risk of herding behavior.
They might follow identical policies to their peers to keep away from
low market performance, take advantage of market conditions, or
penalize shareholders for low profits (Nguyen, 2021; Shabir et al.,
2021). Therefore on the bases of these considerations, we formulate the
hypothesis as follows:
H1. A higher level of geopolitical and economic uncertainty increases
bank risks.
The managerial power theory holds that senior executives can
establish unequal bargaining power. Therefore, much research has
focused on top management and entrepreneurial behavior in deter­
mining firm performance. They have argued that top managers are the
decisive force guiding firm strategic decisions and direction, with the
CEO and board of directors typically playing more of a support role. The
CEO is one of the key players in the corporate sector, playing a crucial
role in the firm's successes or failures (Bristy, Han, & Tian, 2022; Chiu,
Li, & Kao, 2022; Ting, Chueh, & Chang, 2017). As an essential compo­
nent of the top management team, the CEO has a remarkable impact on
the firm (Chiu et al., 2022), guiding them to pursue opportunities
actively and control their structures and strategies (Bristy et al., 2022;
Pathan, 2009). However, there is no consensus in the existing theoretical
and empirical literature on how CEO power is associated with firm
performance (Sheikh, 2018a). The hardcore economic theory considers
CEO power an agency problem (Jensen & Meckling, 1976). They suggest
that CEO power increases the managerial ability to obtain personal
benefits at the cost of shareholders and is adversely related to firm
performance, stock price crash risk (Shahab, Ntim, Ullah, Yugang, & Ye,
2020) and CSR decoupling practices (Shahab, Gull, Ahsan, & Mushtaq,
2022). While the organizational theory state that CEO power is not al­
ways destructive and can be beneficial in some cases (Sheikh, 2018b).
Powerful CEOs are favorably associated with firm performance,
enhanced efficiency, resource allocation, and firm value by making
immediate decisions and responding rapidly to changes in market cir­
cumstances and the face of uncertainties (Bristy et al., 2022; Li et al.,
2017).
Moreover, the characteristics of CEO power and dynamics are closely
linked to corporate governance in a bank. This issue has recently
attracted academics' and policymakers' attention because weak corpo­
rate governance severely damaged financial performance and increased
the probability of bank failure with potentially huge adverse external­
ities due to contagion risk and disruption of the payment system
(Pathan, 2009). In this regard, some researchers have recently examined
the influence of CEO power on banks' risks and performances (Abou-El-
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Sood, 2021; Altunbaş, Thornton, & Uymaz, 2020; Fang, Lee, Chung, Lee, communication and coordination problems in larger boards. Especially
& Wang, 2020; Ting et al., 2017). They highlight that CEOs have vast decisions on the most important issues are usually not made on time due
resources in the banking sector, and their power plays a vital role in to difficulties reaching a consensus on the large boards.
banks' strategic decision-making and capital allocation. More power can In contrast, resource dependence theory justifies larger boards
help CEOs effectively implement strategies that increase competitive­ (Hillman, Keim, & Luce, 2016). It suggests that a larger number of di­
ness, enhance performance, and reinforce governance structures. May rectors enhance the depth and breadth of competence, knowledge, and
(1995) argues that a powerful CEO is more risk averse and hardly ready expertise in the boardroom, which improves the board's decision-
to start further business investment, reducing the risk and future growth. making capacity and increases the pool of resources available to the
This conception is aligned with Pathan's (2009) finding and suggests organization. de Andres and Vallelado (2008) and Switzer, Tu, and
that powerful CEOs can make strong decisions and control board de­ Wang (2018) express that the larger board helps better monitor and
cisions in a way that decreases risk-taking. Adams, Almeida, and Fer­ oversee corporate insiders' actions on behalf of shareholders and brings
reira (2005) pointed out that powerful CEOs are more responsible for more human capital to guide the bank's management. This suggests that
continuing the business's operation and enhancing firm values, espe­ firms that use large boards may be involved in less risky projects (Cheng,
cially during uncertainty and financial distress. Therefore, powerful 2008). Wang (2012) also showed a reverse connection between banks'
CEO is more aware of the bank's capabilities, making better and more board size and risk-taking. Pathan (2009) reveals that smaller boards
rapid strategic decisions, which can lead the bank out of a geopolitical raise bank risk-taking, but boards with many independent directors are
and economic uncertainty crisis and increase asset quality and stability. pursuing less risky strategies. Boone, Casares Field, Karpoff, and Raheja
(2007) document that independent directors negatively affect the firm's
H2. CEO power moderates the impact of geopolitical and economic
risk level. Switzer and Wang (2013) and Akhigbe and Martin (2006)
uncertainty on bank risk.
demonstrate that banks with more independent directors have lower
Corporate governance structures vary across economies due to dis­ default risk and stock volatility in the long run.
similarities in their regulatory and institutional settings. They play an
H3. Strong bank board could moderate the effects of geopolitical and
essential role in the growth and stability of a bank and help them pursue
economic uncertainty on bank risk.
an ‘optimal’ level of risk, allowing managers to maximize shareholder
value. Bhojraj and Sengupta (2003) argue that corporate governance
structure can decrease default risk by mitigating agency costs, moni­ 3. Data and methodology
toring managerial performance, and minimizing information asymmetry
between firms and capital providers. de Andres and Vallelado (2008) 3.1. Data description and sources
indicated that the structure of the bank board is significantly linked to
the bank's performance. Although several studies have recently exam­ In this study, we acquire data from various sources to explore the
ined the impact of board size on banks' financial performance and risk, effects of economic and geopolitical uncertainty on bank risk. We attain
the outcome is still conclusive. One view, supported by the agency the individual bank-level data of 574 banks in 19 countries worldwide
theory, believes that small board is more effective than larger ones from the Bankscope database during 2009–2020.1,2 Macroeconomic
because they are associated with communication/coordination prob­ variables have been taken from the World Development Indicators
lems, weaker monitoring, and slow decision-making (de Andres & Val­ (WDI) and IMF. At the same time, the institutional quality and regula­
lelado, 2008; Jensen, 1993). Jensen (1993) highlights that the decision- tory environment-related data are obtained from the Worldwide
making process is time-consuming and slow due to a lack of Governance Indicators. Finally, to mitigate outliers' impact, we win­
sorized all variables at a 1% level on the top and below their distribu­
tions. Appendix A provides a detailed explanation of all the variables
Table 1 and their sources.
Descriptive Statistics.
Variable Obs Mean Std. Dev. Min Max
3.2. Measurement of variables
ZSC 6888 4.949 1.451 − 4.027 13.299
ECU 6760 − 1.781 0.776 − 4.0508 0.295 3.2.1. Bank risk measures
GPU 6888 4.612 0.349 3.576 5.566
In the existing literature, various accounting measures have been
SIZ 6506 8.578 2.681 − 5.123 15.445
CAP 6506 14.009 12.382 − 35.043 99.985 used as proxy indicators for bank risk. In this study, we followed the
LTA 6489 52.285 18.015 0 96.355 existing studies of Laeven and Levine (2009), Noman, Hassan, Pervin,
LIQ 6506 30.635 16.936 0.15 99.973 Isa, and Sok-gee (2022), Zhang, Li, and Ortiz (2021), Bongiovanni,
ROA 5592 1.063 3.354 − 82.254 59.968
Reghezza, Santamaria, and Williams (2021), and Wu, Li, Zheng, and Liu
INF 6750 2.01 1.173 − 3.522 4.618
GDPpc 6750 1.093 1.71 − 3.36 3.008 (2021a, 2021b). We used the Z-score as our primary measure of a bank's
CEOD 6507 0.409 0.492 0 1 risk, which is calculated as.
CEOF 6507 0.161 0.367 0 1
CEOT 6507 5.791 1.323 2 9 ROAit + Eit /TAit
ZSCit = (1)
CEOO 6507 0.151 0.358 0 1 σROAit
BS 6339 2.404 0.587 1.099 3.829
IND 6339 41.808 16.897 8 80 Where ROA is the return on assets, E/TA is the equity to total assets
FEMD 6507 1.781 1.956 0 15 ratio, and σROA is the standard deviation of return on assets. We mea­
FORD 6507 1.896 3.553 0 19 sure the σ ROA using three-year rolling time windows (Banna, Kabir
PST 6314 − 0.645 0.642 − 2.021 1.153
Hassan, & Rashid, 2021; Shabir et al., 2021). A high Z-score would
RQL 6314 − 0.029 0.69 − 2.364 2.227
COC 6314 − 0.354 0.624 − 1.51 1.962
indicate that the banks are less risky and more stable (Banna et al., 2021;
GEF 6314 0.108 0.627 − 1.658 1.909
RES 6636 7.454 2.286 4 12
CRI 6636 7.332 2.214 3 10 1
Our sample covers Argentina, Brazil, China, Colombia, Hong Kong, India,
PRI 6636 8.277 1.575 4 11
Indonesia, Israel, Malaysia, Mexico, Philippines, Republic of Korea, Russian
Notes: The table demonstrates descriptive statistics of the variables used in this Federation, Saudi Arabia, South Africa, Thailand, Turkey, Ukraine, Venezuela
2
study. Appendix A provides a detailed explanation of all the variables and their We choose this sample and time frame for study because of the availability
sources. of geopolitical risk index data.

4
M. Shabir et al.
Noman et al., 2022) because it is adversely associated with the proba­
bility of bank insolvency. Furthermore, we use the natural logarithm
transformation of the Z-score to smooth out higher values (Banna et al.,
2021; Noman et al., 2022).
3.2.2. Economic uncertainty
We follow Bilgin et al. (2021) and Demir and Danisman (2021) and
use the World Uncertainty Index as a proxied for the economic uncer­
tainty (ECU), which was introduced by Ahir, Bloom, and Furceri (2018).
It is measured by counting the word “uncertainty” frequencies in the
Economist Intelligence Unit (EIU) country reports. These reports include
economic and political expansions in each country, along with future
policy-related and economic projections (Bilgin et al., 2021). ECU is
available quarterly; we followed Demir and Danisman (2021) and took
the simple average of the four quarters to formulate a yearly ECU
measure.
3.2.3. Geopolitical uncertainty
The study followed Liu, Han, and Xu (2021) and Demir and Danis­
man (2021) and used the geopolitical risk index as the proxy for
geopolitical uncertainty (GPU), which was constructed by Caldara and
Iacoviello (2018).3 The index is calculated by counting the number of
articles linked to geopolitical tensions, sharing the number of news ar­
ticles in the 11 leading domestic and foreign newspapers, such as the
words: geopolitics, war, military, and terrorism (Demir & Danisman,
2021). The index is available monthly for the nineteen countries.4
Therefore to construct a yearly GPU measure, we followed Demir and
Danisman (2021) and took the simple average of all months in a year.
3.2.4. CEO power and board strength
There is no unanimous definition of CEO power in the previous
literature. Most researchers have widely used the four key sources of
CEO power pointed out by Finkelstein (1992): structural power, expert
power, prestige power, and ownership power. Although, this definition
does not lend itself to natural and unequivocally provides CEO power
(Chao, Hu, Munir, & Li, 2017; Sheikh, 2018a, 2018b). Therefore, in this
study, we consider powerful CEOs to be the ones who can continuously
influence the major board decisions in banks. To this end, we follow
Altunbaş et al. (2020), Chao et al. (2017), and Li et al. (2017) and
construct a CEO power index (CEOPI) by using the four CEO power-
related variables such as CEO duality (CEOD), CEO founder (CEOF),
CEO ownership (CEOO). And CEO tenure (CEOT). In this regard, we use
Principle Component Analysis (PCA) to combine these variables into a
one-dimensional index. In addition, we follow previous studies and use
these four proxies as robustness to assess CEO power. The first measure
of CEO power is CEO duality (CEOD). Hermalin and Weisbach (1998)
state that a CEO who also holds the position of the board chairperson has
more decision-making power. Li et al. (2017) argue that the CEO-Chair
duality controls the flow of information to other directors and decreases
the board's independent supervision of the manager. Therefore,
following Altunbaş et al. (2020), Chao et al. (2017), and Li et al. (2017),
we take a dummy variable which equals one if the CEO is also the chair
of the board and 0 otherwise. The second measure of CEO power is CEO
founder (CEOF). Earlier literature has shown that a founder CEO is more
influential in decision-making (Chao et al., 2017; Li et al., 2017). In
addition, firms with founding CEOs may have lower agency costs
because they have a greater ability to guide the firm and minimize
conflict within the firm (Li et al., 2017). Hence, we follow Chao et al.
(2017) and Li et al. (2017) and take a dummy variable which equals one
if a CEO is one of the firm's founders and 0 otherwise. The third measure
of CEO power is CEO ownership (CEOO). Chao et al. (2017) and Pathan
3
For more detail, please visit https://www.matteoiacoviello.com/gpr.htm
4
For further details about the GPU estimation, please visit https://www.
matteoiacoviello.com/gpr.htm.
5
International Review of Financial Analysis 87 (2023) 102603
(2009) state CEOs with a higher proportion of the shares in firms are
more powerful and capable of determining the firm's direction. Thus,
following Chao et al. (2017), Li et al. (2017), and Sheikh (2018a,
2018b), we use a dummy variable to measure CEOO power, which
equals one if a CEO owns more than 10% of the bank's shares and
0 otherwise. The fourth measure of CEO power is CEO tenure (CEOT).
Recently some studies have suggested that CEOs' power is expected to
increase over the length of the tenure (Altunbaş et al., 2020; Sheikh,
2018a, 2018b). It reflects a history of successful performance and helps
CEOs build stronger relationships with their boards and influence stra­
tegic decisions. We followed the previous literature and calculated the
CEOT as the total length of the CEO tenure in years (Altunbaş et al.,
2020).
Furthermore, a strong bank board influences the decision-making
process and better oversight of bank managers for shareholders.
Pathan (2009) express that the board of directors' effectiveness in
monitoring and advising managers determines its strength. Therefore,
this study follows the previous literature and constructs a board strength
index (BSI) using Principle Component Analysis (PCA) to combine the
different variables into a one-dimensional index. In addition, we use
these four variables as robustness to capture board strength: board size,
independent directors, female directors, and foreign directors. Board
size (BS) is the number of directors on the board. Independent directors
(IND) measure is the proportion of independent directors. The female
director (FEMD) is calculated as the percentage of female director di­
rectors on the board and foreign directors (FORD) are measured as the
percentage of foreign directors.
3.2.5. Bank and country-specific variables
According to the current literature of Bongiovanni et al. (2021),
Laeven and Levine (2009), and Shabir et al. (2021), our models consider
several bank features that can shape the impact of economic and
geopolitical uncertainty on bank risk/stability. These variables have
been incorporated to show banks' policies and characteristics that may
influence performance and risks. The primary purpose of including these
variables is to ensure that the underlying relationship to bank risk is not
affected when examining possible independent variables. These vari­
ables are bank size, leverage, net loans-to-assets ratios, liquidity, and
profitability.
We first control the individual bank's size (SIZE), calculated in bank
literature as the natural logarithm of total assets. It is usually expected
that large banks will have an incredible opportunity to diversify their
income source through an economic scale (Tabak, Fazio, & Cajueiro,
2012). Our next control variable is the equity-to-total assets ratio (CAP),
which is used to control the relationship between capitalization and
bank fragility, reflecting banks' main capital strength (Meslier, Risfandy,
& Tarazi, 2020). From a traditional point of view, it is assumed that the
larger the equity finance, the lower the bank's risk because higher equity
finance will reduce default risk and debt cost (Shah, Akbar, Liu, Liu, &
Cao, 2017). Banks liquidity (LIQ) is determined as the bank liquid assets
to total assets ratio. A high liquidity position can play an influential role
in bank credit, while it is also possible for banks to opt for higher
liquidity during some of the expected crises (Wu et al., 2020a, 2020b).
The net loan over total asset ratio (LTA) measures the banks' portfolio
mix, indicating the bank activity's core business and credit exposure
(Shah et al., 2017). And finally, we include return on assets (ROA),
which shows the bank's efficiency in managing its assets. However,
higher profit may either encourage banks to take the higher risk or
constrain the bank risk-taking depending on individual bank policy,
whether it generates higher returns or not (Nguyen, Parsons, & Argyle,
2021).
The country's economic situation and industry structure can also
impact the banking sectors' performance and stability. We use GDP per
capita (GDPpc) and inflation (INF) rates to control business cycles'
overall effects, unobserved factors that vary across countries(Shabir
et al., 2021; Shah et al., 2017; Wu, Li, et al., 2021a, 2021b). Finally,
M. Shabir et al.
bank concentration (CON) controls the country's market structure.
Concentration in the banking industry is another factor that can signif­
icantly impact bank risk /stability and is measured as the share of the
assets of the three largest banks in an economy (Nguyen et al., 2021).
3.3. Econometric model
To analyze the effect of economic and geopolitical uncertainty on
bank risk, we constructed our baseline models by following traditional
risk models which are used in existing literature (Bilgin et al., 2021;
Nguyen, 2021; Phan, Iyke, et al., 2021, Phan, Tran, & Iyke, 2021; Shabir
et al., 2021; Wu, Li, et al., 2021a, 2021b; Zhang, Li, & Ortiz, 2021,
Zhang, Li, Xu, & Ortiz, 2021) and is estimated as follows:
ZSCijt = βECUjt + ΩXit + θZjt + μi + δt + εit
ZSCijt = βGPUjt + ΩXit + θZjt + μi + δt + εit
Where subscripts i, j, and t denote banks, countries, and time,
respectively. ZSCijt is a proxy for the bank default risk as to the depen­
dent variable. While ECUjt and GPUjt is our main explanatory variable.
The vector Xit contains bank-level control variables, and Zjt is a vector of
country-level macroeconomic variables. β, Ω, and θ are the estimated
coefficients, ui, and δt are the bank and time-specific effects and εit is the
error term. We estimate eqs. (1 and 2) with the fixed-effects model and
standard error clustered at the bank level (Tran & Houston, 2021).5 We
also use alternative econometric methodologies and proxies for depen­
dent and independent variables and some other sensitivity tests later to
confirm our results' robustness.
Additionally, we also observe the moderating role of CEO power and
board strength on the nexus of economic and geopolitical uncertainty
and bank risk. For this purpose, we follow Zhang, Li, and Ortiz (2021)
and extend our baseline models (1 and 2) by including the interaction
term of our moderators (M) with ECUjt and GPUjt, then the model is
constructed as
ZSCijt = β1 ECUjt + β2 Mit + β3 Mit *ECUjt + ΩXit + θZjt + μi + δt + εit
ZSCijt = β1 GPUjt + β2 Mit + β3 Mit *GPUjt + ΩXit + θZjt + μi + δt + εit
Where Mit represent our moderator variable (i.e., CEO power and
board strength), while the Mit * ECUjt and Mit * GPUjt are the cross-
product of the moderator variable (Mit) with our primary independent
variable of economic uncertainty (ECUjt) and geopolitical uncertainty
(GPUjt) respectively.
4. Results and discussion
4.1. Descriptive statistics
Table 1 reports the descriptive statistics of the variables used in the
regression. The mean value of the Z-score for 19 countries is 4.949, with
a minimum of − 4.027, a maximum of 13.299, and a standard deviation
of 1.451. Regarding our key independent variables, economic uncer­
tainty and geopolitical uncertainty have an average value of − 1.781 and
4.612 and range between − 4.0508 and 0.295, 3.576 and 5.566,
respectively. In the same way, other control variables also demonstrate
significant deviation around the sample means.
4.2. Uncertainty and bank risk
Panel A and B in Table 2 report the effects of economic and geopo­
litical uncertainty on bank risk, respectively. Columns 1 and 6 are shown
the result of our baseline eqs. (1 and 2) without including control
5
The Hausman test suggests that the fixed-effects estimator is more appro­
priate i θ n our study than the random-effects estimator.
International Review of Financial Analysis 87 (2023) 102603
variables. Still, we control the cross-sectional and time effects to
examine the influence of economic and geopolitical uncertainty on bank
risk. In Columns 2 and 7, we include the bank-specific control variable,
while in Columns 3 and 8, we take account of country-specific control
variables. In columns 4 and 9, we include both bank and country-specific
control variables. In columns 5 and 10, we include economic and
geopolitical uncertainty along with bank and country-specific control
variables. The estimated coefficient of economic uncertainty and
geopolitical uncertainty to bank risk measure Z-score is significantly
negative in all regression models. These results show that an increase in
economic and geopolitical uncertainty enhances bank risk and insta­
bility, as indicated by the negative coefficient of ECU and GPU, which is
consistent with previous literature of Chi and Li (2017), Phan, Iyke, et al.
(2021), Phan, Tran, & Iyke, 2021, Wu et al., 2020a, 2020b; Zhang, Li, &
(1)
Ortiz, 2021, Zhang, Li, Xu, & Ortiz, 2021. These outcomes demonstrate
that banks are more likely to engage in “herding behaviors” when faced
(2)
with economic and geopolitical uncertainty due to the lack of for­
warding identification through the risk framework (Wu et al., 2020a,
2020b; Zhang, Li, & Ortiz, 2021, Zhang, Li, Xu, & Ortiz, 2021).
Furthermore, due to low profitability and high market competition,
banks “search for yield” to profit by investing in high-risk projects (Wu
et al., 2020a, 2020b; Zhang, Li, & Ortiz, 2021; Zhang, Li, Xu, & Ortiz,
2021). However, the expected results show that these behaviors do not
yield the desired benefits but pose a greater risk and instability (Shabir
et al., 2021; Wu et al., 2020a, 2020b; Zhang, Li, & Ortiz, 2021; Zhang, Li,
Xu, & Ortiz, 2021).
In Table 2, outcomes also show significant evidence of the associa­
tion between both groups (bank-specific and country-specific) of control
variables and bank risk measure Z-score. The first group of control
variables (bank-specific variables) illustrates that large, well-
capitalized, better liquidity positions and more profitable banks are
more stable and less risky. This means that large and profitable banks
show fewer risks because they take better advantage of economies of
scale, diversify, have more investment opportunities, and have a greater
capacity to manage their risks. This significant positive relationship is
(3)
also reported in earlier studies by Nguyen et al. (2021), Phan, Iyke, et al.
(2021), Wu, Li, et al. (2021a, 2021b), and Zhang, Li, and Ortiz (2021).
(4)
The capitalization coefficient is significantly positive with bank risk
measure Z-score in all models, consistent with Nguyen et al. (2021) and
Zhang, Li, and Ortiz (2021). This indicates that well-capitalized banks
generally face lower risks and reduced insolvency risk; these have been
the primary objectives for stricter capital requirements (summarized in
Basel II and III). The coefficient of a bank's portfolio mix is significantly
positive, which shows that a higher level of asset quality help to reduce
the bank risk and enhance bank stability. This finding is consistent with
Nguyen et al. (2021) and Phan, Iyke, et al. (2021). Simultaneously, the
coefficient of bank liquidity is significantly positive, which illustrates
that a higher liquidity position enhances bank stability. This finding is
consistent with Wu, Li, et al. (2021a, 2021b) and contradicts Demir and
Danisman (2021) and Nguyen et al. (2021). Regarding the macroeco­
nomic control variables, inflation and bank concentration significantly
affect bank risk, while the GDP per capita is statistically insignificant
and consistent with Phan, Iyke, et al. (2021), Phan, Tran, and Iyke
(2021).
4.3. The role of CEO power and board strength
We are also interested in examining whether the effect of economic
uncertainty and geopolitical risk on bank risk varies across banks based
on CEO power and strong board characteristics—whether they
neutralize the influence of economic and geopolitical uncertainty risk on
bank risk. For this purpose, we estimate regression Eq. (3) and (4)
separately. We include an interaction term for CEO power index and
board strength index variable with economic uncertainty and geopolit­
ical risk and report the results in Tables 3 and 4, respectively. The
interaction terms coefficients in these estimates show the conditional
6
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 2
The effect of economic and geopolitical uncertainty risk on bank risk.
Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC

ECU − 0.054** − 0.101*** − 0.073*** − 0.087*** − 0.129** − 0.313***

(0.026) (0.032) (0.013) (0.037) (0.059) (0.052)
GPU − 0.175** − 0.425*** − 0.283*** − 0.747*** − 0.428*** − 0.281**
(0.088) (0.062) (0.076) (0.085) (0.109) (0.132)
SIZ 0.297*** 0.515*** 0.003*** 0.304*** 0.489*** 0.351*
(0.039) (0.000) (0.001) (0.039) (0.071) (0.185)
CAP 0.030*** 0.041*** 0.078*** 0.030*** 0.041*** 0.034***
(0.003) (0.005) (0.012) (0.003) (0.005) (0.006)
NLTA 0.019*** 0.012*** 0.040*** 0.018*** 0.010*** 0.093***
(0.003) (0.004) (0.013) (0.003) (0.004) (0.012)
LIQ 0.010*** 0.090*** 0.018*** 0.005** 0.086*** 0.007***
(0.003) (0.007) (0.003) (0.003) (0.014) (0.002)
ROA 0.071*** 0.094*** 0.008*** 0.072*** 0.094*** 0.010*
(0.006) (0.008) (0.002) (0.006) (0.008) (0.006)
INF − 0.024 0.072** 0.001 0.047* 0.072** 0.012***
(0.028) (0.035) (0.004) (0.026) (0.035) (0.002)
GDPpc 0.032* 0.009 0.037 0.039** 0.007 0.010
(0.019) (0.063) (0.440) (0.018) (0.023) (0.007)
CON 0.003* 0.008*** 0.004 0.001 0.007*** 0.012
(0.002) (0.003) (0.005) (0.002) (0.003) (0.011)
α0 4.682*** − 0.051 4.590*** 0.569 3.961** 6.727*** 1.562*** 8.103*** 0.569 4.090**
(0.076) (0.415) (0.140) (1.015) (1.978) (0.289) (0.585) (0.410) (1.015) (1.966)
Obs. 6760 5498 4969 3953 5895 6888 5579 5097 3953 5723
R-squared 0.317 0.395 0.325 0.428 0.193 0.318 0.394 0.331 0.428 0.193
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Note: This table presents our baseline regression models (1) and (2) findings for the effect of economic uncertainty and geopolitical risk on bank risk. The dependent
variable is bank risk (ZSC), measured as Z-Score. Panel A represents the result of economic uncertainty, while Panel B reports the finding of geopolitical uncertainty.
Other independent variables are grouped into two categories, namely, bank characteristics and macroeconomic conditions. All estimations are conducted by using the
fixed-effects estimator. Standard errors are clustered at the bank level and reported in parenthesis; ***, **, and * stand for statistical significance at 0.01, 0.05, and 0.1.

effect of CEO power and board strength on bank risk.
Panel A and B in Table 3 present CEO power's role in shaping the
effect of economic uncertainty and geopolitical uncertainty on bank risk.
To capture the CEO's capability to implement decision-making power
more comprehensively, we develop a CEO power index (CEOPI) by
applying Principal Components Analysis (PCA) to four CEO power-
related variables: CEO duality, CEO founder, CEO ownership, and CEO
tenure. The outcomes are reported in columns 1 and 6 in Table 3,
showing that the coefficient of CEO power index and its interaction
terms with economic and geopolitical uncertainty is significantly posi­
tive. This indicates that power helps the CEO execute strategies effi­
ciently, which enhances competitiveness and improves stability.
Moreover, as robustness, we further use these four proxies sepa­
rately. We find a significant positive relationship between CEO-duality
and Z-score, which shows that amalgamating the position of CEO and
chairperson of the board decreases the bank's default risk. This outcome
aligns with Akbar, Kharabsheh, Poletti-Hughes, and Shah (2017) and
Pathan (2009). This is consistent with the stewardship theory, which
acknowledges the benefits of the highest command of the coalition
(Finkelstein & D’aveni, 1994). The interaction term of CEO-duality with
economic uncertainty and geopolitical uncertainty is also a significant
positive to Z-score. This indicates that CEO/Chairperson duality reduces
economic and geopolitical uncertainties' adverse effect on bank default
risk. The results have economic significance because the same person in
both positions provides a single direction, strong leadership, broader
knowledge and experience of the bank's environment, controls the bank,
and makes better and more rapid strategic decisions more successfully.
Thus, it avoids internal and external uncertainties regarding re­
sponsibilities and helps banks achieve their goals during high economic
and geopolitical uncertainties(Donaldson & Davis, 1991).
Similarly, CEO tenure is positive and significant with Z-score, which
means that CEO expert power constantly enhances stability and reduces
bank default risk. The results are understandable because CEOs who are
more capable of dealing with their work environment are more likely to
overcome problems and perform better (Ting et al., 2017). The inter­
action terms of CEO tenure with economic uncertainty and geopolitical
uncertainty are significantly positive. This positive relationship recom­
mends that long-serving CEOs form a better management team that can
effectively collaborate, enhancing stability and improving lending de­
cisions. Longer-tenured CEOs are essential for the bank to develop and
reinforce their learning about specific problems (Finkelstein, 1992).
Increases their accountability and instills a sense of ownership, which
helps them align their objectives with the banks (Gupta & Mahakud,
2020). The CEO ownership coefficient with a Z-score is statistically
significantly positive, consistent with the finding of Fang et al. (2020).
This indicates that the CEO's ownership power has a favorable impact on
the quality of the bank's lending, enhances bank stability, and reduces
risk. This finding is conceivable because CEOs with more enormous
stakes have higher motivation and incentive to monitor bank lending
activities closely. In contrast, the interaction between CEO's ownership
with economic and geopolitical uncertainty is statistically insignificant.
However, the coefficient of CEO founder and its interaction term with
economic and geopolitical uncertainty is statistically insignificant in
Panel A and B.
Furthermore, with regard to measures of strong board characteristics
in Table 4, we use the Principal Components Analysis (PCA) and
construct a board strength index (BSI). The outcomes are stated in col­
umns 1 and 6 in Table 4, showing that the board strength index coeffi­
cient and its interaction terms with economic and geopolitical
uncertainty are statistically significant with a positive sign. This in­
dicates that a strong board implements strategies efficiently, which en­
hances competitiveness and improves stability. Moreover, the
coefficient on board size is positive and is statistically significant with Z-
score. These results are consistent with previous literature and sup­
ported by the resource dependence theory, showing that a large number
of directors enhances the depth and breadth of expertise in the

7
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 3
The effect of economic and geopolitical uncertainty risk on bank risk: The role of CEO power.
Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC

ECU − 0.199** − 0.140*** − 0.132 − 0.120** − 0.159*** − 0.643*** − 0.436*** 0.064 − 0.606*** − 0.566***
(0.093) (0.053) (0.143) (0.047) (0.047) (0.115) (0.152) (0.337) (0.000) (0.000)
GPU 0.053*** 0.052*** 0.051*** 0.055*** 0.052***
(0.016) (0.015) (0.015) (0.015) (0.015)
SIZ 0.055*** 0.056*** 0.054*** 0. 156*** 0. 159*** 0.019*** 0.018*** 0.018*** 0.019*** 0.018***
(0.016) (0.016) (0.016) (0.005) (0.006) (0.003) (0.003) (0.003) (0.003) (0.003)
CAP 0.019*** 0.019*** 0.019*** 0.020*** 0.019*** 0.012*** 0.012*** 0.012*** 0.011*** 0.012***
(0.003) (0.003) (0.003) (0.003) (0.003) (0.002) (0.002) (0.002) (0.002) (0.002)
NLTA 0.013*** 0.012*** 0.012*** 0.012*** 0.013*** 0.002 0.001 0.001 0.000 0.002
(0.002) (0.002) (0.002) (0.002) (0.002) (0.003) (0.003) (0.003) (0.003) (0.003)
LIQ 0.003 0.002 0.002 0.002 0.003 0.108*** 0.108*** 0.109*** 0.109*** 0.109***
(0.003) (0.003) (0.003) (0.003) (0.003) (0.008) (0.007) (0.007) (0.007) (0.007)
ROA 0.109*** 0.108*** 0.109*** 0.109*** 0.109*** 0.067* 0.052 0.051 0.053 0.052
(0.008) (0.008) (0.008) (0.008) (0.008) (0.040) (0.038) (0.038) (0.038) (0.038)
INF − 0.023 − 0.023 − 0.023 − 0.024 − 0.022 0.023 0.027 0.029 0.027 0.027
(0.037) (0.037) (0.037) (0.037) (0.037) (0.026) (0.025) (0.025) (0.025) (0.025)
GDPpc 0.033 0.034 0.033 0.035 0.034 0.005* 0.004 0.005* 0.005* 0.005*
(0.026) (0.026) (0.026) (0.026) (0.026) (0.003) (0.003) (0.003) (0.003) (0.003)
CON 0.007** 0.007** 0.007** 0.007** 0.007**
(0.003) (0.003) (0.003) (0.003) (0.003)
CEOPI 0.499***
(0.154)
ECU *CEOPI 0.831***
(0.060)
CEOD 0.430***
(0.161)
ECU *CEOD 0.054***
(0.001)
CEOT 0.430***
(0.130)
ECU *CEOT 0.499***
(0.154)
CEOF − 0.105
(0.143)
ECU *CEOF − 0.014
(0.074)
CEOO 0.184***
(0.006)
ECU *CEOO 0.113***
(0.007)
CEOPI 0.279**
(0.131)
GPU*CEOPI 0.628***
(0.127)
CEOD 0.220***
(0.046)
GPU *CEOD 0.320**
(0.160)
CEOT 0.524**
(0.246)
GPU *CEOT 0.118**
(0.053)
CEOF 1.415
(0.846)
GPU*CEOF − 0.349
(0.124)
CEOO 2.483***
(0.006)
GPU*CEOO 0.576***
(0.003)
αo 1.861*** 1.889*** 2.009*** 2.049*** 1.841*** 4.934*** 4.105*** 4.729*** 1.926 4.836***
(0.395) (0.397) (0.396) (0.480) (0.396) (0.647) (0.786) (0.652) (1.595) (0.652)
Obs. 3872 3872 3872 3872 3872 3872 3953 3953 3953 3953
R-squared 0.195 0.194 0.196 0.194 0.195 0.199 0.198 0.200 0.198 0.198
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Note: This table represents the moderating role of CEO power in the relationship between economic and geopolitical uncertainty risk impact on bank risk. All re­
gressions are based on Eqs. (3) and (4). The dependent variable is bank risk (ZSC), measured as Z-Score. Panel A represents the result of economic uncertainty, while
Panel B reports the finding of geopolitical uncertainty. All estimations are conducted by using the fixed-effects estimator. Standard errors are clustered at the bank level
and reported in parenthesis; ***, **, and * stand for statistical significance at 0.01, 0.05, and 0.1.

8
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 4
Effect of economic and geopolitical uncertainty risk on bank risk: The role of board strength.
Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC

WUI − 0.162 − 0.397*** − 0.107 − 0.252*** − 0.225***

(0.112) (0.150) (0.106) (0.051) (0.044)
GPR − 0.908** − 1.081*** − 0.926*** − 0.363*** − 0.379***
(0.378) (0.336) (0.355) (0.111) (0.125)
SIZ 0.507*** 0.115*** 0.507*** 0.118*** 0.117*** 0.481*** 0.122*** 0.487*** 0.123*** 0.123***
(0.088) (0.022) (0.088) (0.018) (0.023) (0.081) (0.019) (0.081) (0.018) (0.023)
CAP 0.043*** 0.024*** 0.043*** 0.023*** 0.023*** 0.041*** 0.024*** 0.041*** 0.023*** 0.023***
(0.008) (0.003) (0.008) (0.003) (0.005) (0.008) (0.003) (0.008) (0.003) (0.005)
NLTA 0.012** 0.006** 0.012** 0.009*** 0.009*** 0.010** 0.006** 0.011** 0.008*** 0.008***
(0.005) (0.003) (0.005) (0.002) (0.003) (0.005) (0.003) (0.005) (0.002) (0.003)
LIQ 0.001 − 0.003 0.001 − 0.001 0.001 − 0.001 − 0.003 − 0.001 − 0.001 − 0.001
(0.005) (0.003) (0.005) (0.003) (0.003) (0.004) (0.003) (0.004) (0.003) (0.003)
ROA 0.096*** 0.104*** 0.096*** 0.102*** 0.102*** 0.095*** 0.102*** 0.095*** 0.101*** 0.101***
(0.014) (0.008) (0.014) (0.008) (0.014) (0.013) (0.008) (0.013) (0.007) (0.013)
INF 0.025 − 0.092*** 0.025 − 0.089*** − 0.091*** 0.072** − 0.068** 0.072** − 0.071** − 0.071**
(0.038) (0.031) (0.038) (0.032) (0.032) (0.037) (0.032) (0.037) (0.029) (0.028)
GDPpc 0.004 0.081*** 0.005 0.082*** 0.082*** 0.004 0.083*** 0.004 0.084*** 0.085***
(0.026) (0.022) (0.026) (0.021) (0.022) (0.026) (0.021) (0.026) (0.021) (0.023)
CON 0.008*** 0.011*** 0.008*** 0.011*** 0.011*** 0.007*** 0.013*** 0.007*** 0.017*** 0.018***
(0.003) (0.002) (0.003) (0.002) (0.002) (0.003) (0.002) (0.003) (0.002) (0.002)
BSI 0.731***
(0.070)
WUI*BSI 0.066***
(0.009)
BS 0.184*
(0.105)
WUI*BS 0.108**
(0.050)
IND 0.186***
(0.017)
WUI*IND 0.152***
(0.012)
FEMD 0.034**
(0.017)
WUI*FEMD 0.055*
(0.033)
FORD 0.021
(0.016)
WUI*FORD 0.012
(0.009)
BSI 0.971***
(0.138)
GPR*BSI 0.553***
(0.050)
BS 1.497**
(0.697)
GPU*BS 0.328**
(0.151)
IND 0.249***
(0.036)
GPR*IND 0.136***
(0.013)
FEMD 0.169***
(0.017)
GPR*FEMD 0.025
(0.044)
FORD 0.057
(0.134)
GPR*FORD − 0.013
(0.031)
αo 6.896*** 1.547*** 5.861*** 1.626*** 1.657*** 12.48*** 7.356*** 11.225*** 3.892*** 3.957***
(1.531) (0.419) (1.444) (0.335) (0.401) (2.211) (1.588) (2.087) (0.605) (0.666)
Obs. 3760 3760 3760 3872 3872 3841 3841 3841 3953 3953
R-squared 0.095 0.129 0.096 0.102 0.132 0.096 0.122 0.096 0.110 0.129
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Note: This table represents the moderating role of board strength in the relationship between economic and geopolitical uncertainty risk impact on bank risk. All
regressions are based on Eqs. (3) and (4). The dependent variable is bank risk (ZSC), measured as Z-Score. Panel A represents the result of economic uncertainty, while
Panel B reports the finding of geopolitical uncertainty. All estimations are conducted by using the fixed-effects estimator. Standard errors are clustered at the bank level
and reported in parenthesis; ***, **, and * stand for statistical significance at 0.01, 0.05, and 0.1.

9
M. Shabir et al.
boardroom, which helps to improve the board's decision-making ability
and enhance the bank's stability (Bhatia & Gulati, 2021). The interaction
term of board size with economic and geopolitical uncertainty is positive
to Z-score. It represents that the large board representation decreases
economic and geopolitical uncertainty's adverse impact. The results
have economic significance because large boards have people with
different skills and expertise, increasing the board's knowledge base and
providing better access to the external environment, and decreasing the
uncertainty faced by the bank.
In the same way, the coefficient of independent directors is signifi­
cantly positive with Z-score. These results are consistent with previous
studies by Akbar et al. (2017) and Pathan (2009), showing that inde­
pendent directors represent less risk-taking behavior and enhance bank
stability. Moreover, the coefficient of the interaction term of indepen­
dent directors with economic and geopolitical uncertainty is also
significantly positive, supporting the idea that independent directors'
role is valuable in distressed market conditions, especially in times of
high economic and geopolitical uncertainty. Moreover, we find a sig­
nificant positive relationship between female directors and the Z-score.
This shows that a more gender-diverse board provides better oversight
to reduce bank risk. At the same time, the coefficient of interaction term
of female directors is weakly significant with economic uncertainty and
statistically insignificantly with geopolitical uncertainty. On the other
hand, the coefficient of foreign directors and its interaction term is also
statistically insignificant in Panel A and B.
5. Robustness checks
5.1. Alternative bank risk measurement
While the previous analysis used the Z-score as a measure of bank
risk, for a broader perspective and robustness, we use credit risk (NPL),
operation risk (σNIM), portfolio risk (σROA), and leverage (σROE) as
alternative bank risk proxies. Firstly, we followed Bongiovanni et al.
(2021), Phan, Iyke, et al. (2021), Phan, Tran, and Iyke (2021), and
Shabir et al. (2021) and used the non-performing loan as a proxy for
bank credit risk. This proxy is also an accounting-based bank risk
measure calculated as the bank ratio of non-performing loans over total
bank loans and denoted by NPL. A higher NPL ratio shows a larger
possibility of a bank's bankruptcy and vice versa (Goetz, 2018). Sec­
ondly, we follow Danisman and Demirel (2019) and Shabir et al. (2021)
and measure bank operational risk through the volatility of net interest
margin (σNIM), which indicates the level of risk in a bank's operations
(Houston, Lin, Lin, & Ma, 2010). Higher volatility in NIM is a result of a
riskier lending strategy. Since the operational risk is highly skewed, we
follow Danisman and Demirel (2019) and transform this variable using
natural logarithms. Moreover, to further analyze the impact of economic
and geopolitical uncertainty on bank risk and stability in this study, we
follow the existing studies and decompose the Z-score into two different
components (Bilgin et al., 2021; Danisman & Demirel, 2019; Phan, Tran,
& Iyke, 2021; Shabir et al., 2021; Zhang, Li, & Ortiz, 2021). The one is
the portfolio risk as a proxy by the ROA divided by the standard devi­
ation of ROA and denoted by σ(ROA). Whereas the portfolio risk is
highly skewed, we follow Danisman and Demirel (2019) and transform
this variable using natural logarithms. At the same time, we used the
second component of the Z-score as the proxy for the leverage risk of the
bank, which is the ratio of equity over assets divided by the standard
deviation of ROA and denoted by σ(ROE). As the leverage risk is highly
skewed, we follow Danisman and Demirel (2019) and transform this
variable using natural logarithms. The finding is presented in Table 5.
The coefficients of economic uncertainty and geopolitical uncertainty
are significantly positive with all the alternative bank risk proxies (e.g.,
NPL, σ(NIM), σ(ROE), and σ(ROA)) and support the previous findings in
Table 2. These findings are consistent with Bilgin et al. (2021), Nguyen
et al. (2021), Shabir et al. (2021), and Phan, Iyke, et al. (2021), which
indicates that a rise in economic uncertainty and geopolitical risk
10
International Review of Financial Analysis 87 (2023) 102603
enhances the bank risk and weaker the bank stability.
5.2. Alternative economic uncertainty and geopolitical risk measures
The baseline estimation in Table 2 considers the aggregate effect of
economic uncertainty and geopolitical risk on bank risk. However, for
further robustness and comparability of our findings, we follow Demir
and Danisman (2021) and implement alternative economic and geopo­
litical uncertainty measures techniques whose detailed descriptions are
present in Appendix Table A, which are represented by ECU2, ECU3, Δ
ECU, GPU2, GPU3, and Δ GPU respectively. Table 6 shows the estimated
results based on these economic uncertainties and geopolitical risk
measures. These outcomes are consistent with the baseline finding in
Table 2, suggesting that an increase in economic uncertainty and
geopolitical uncertainty enhances the bank risk and weakens bank
stability.
5.3. Alternative econometric methodologies
Although we use a wide range of control variables, we are still
concerned about endogeneity because some omitted variables might
affect economic uncertainty, geopolitical uncertainty, and bank risk.
However, increasing banks' overall risk could increase uncertainty in the
economy, causing reverse causality issues. Therefore, we assume that
our model may face endogeneity problems, affecting the nexus among
economic uncertainty, geopolitical risks, and bank risk. We now use
alternative economical methods to address this concern to check
whether our key results will be affected by various assumptions in the
data generation process. Therefore for this purpose, we follow Bilgin
et al. (2021), Shabir et al. (2021), and Wu, Li, et al. (2021a, 2021b); we
use the 2SLS and two-step System Generalized Method of Moments
(System GMM) to deal with potential endogeneity.
5.3.1. 2SLS estimation techniques
Firstly, by considering the potential endogeneity due to uncertainty
by the weakness of the banking system, we re-estimate our regressions
by employing a two-stage least squares (2SLS) regression with instru­
mental variables approach. Following Bilgin et al. (2021), Baker and
Bloom (2013), and Wu, Li, et al. (2021a, 2021b), we use political shocks,
high-casualty terrorist attacks, and lagged first-order differences inde­
pendent variables (WUI and GPR) as instrumental variables which are
presumed to affect the overall economic uncertainty and geopolitical
risk but do not directly affect the bank's risk.6 The first one is political
shocks which are the binary variable, equal to 1 for the periods of suc­
cessful/attempted rebellion and the resignation of state leadership due
to the loss of authority; otherwise, 0 (Wu, Li, et al., 2021a, 2021b). The
second is a high-casualty terrorist attack which is also a dummy variable
equal to 1 if terrorist bombings resulted in more than 15 casualties in a
specific country and year; otherwise, 0 (Bilgin et al., 2021; Wu, Li, et al.,
2021a, 2021b). Lastly, we employ the lagged first-order difference of
ECU and GPU as independent variables. Columns 1 and 2 in Table 7
report the second-stage estimation results. We find that the coefficients
of both variables are statistically significant and still show the same
signs as our previous estimates.
5.3.2. GMM estimation technique
Additionally, we further apply the two-step System GMM proposed
by (Blundell & Bond, 1998), which is particularly well-suited to over­
coming the inconsistency caused by endogeneity. Numerous studies
have widely used this approach to evaluate the economic uncertainty –
bank risk/performance relation and eliminate the endogeneity bias
6
Political shock and high-casualty terrorist attack data are taken from the
Center for Systemic Peace. For more details, please visit Bilgin et al. (2021),
Baker and Bloom (2013), and Wu et al. (2020a, 2020b)).
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 5
Alternative Bank Risk measurement.
Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6) (7) (8)

NPL σ(NIM) σ(ROA) σ(ROE) NPL σ(NIM) σ(ROA) σ(ROE)

ECU 3.318*** − 0.096** 0.553*** 2.072***
(0.491) (0.043) (0.145) (0.382)
GPU 2.621*** 0.383*** 0.406*** 4.925***
(0.492) (0.120) (0.142) (1.865)
SIZ − 1.290*** 0.011 − 0.662*** − 5.946*** − 1.368*** 0.016 − 0.622*** − 4.905***
(0.262) (0.074) (0.094) (1.240) (0.255) (0.074) (0.095) (1.249)
CAP − 0.054* 0.014** − 0.011 − 0.460*** − 0.057** 0.015*** − 0.011 − 0.410***
(0.029) (0.006) (0.007) (0.100) (0.028) (0.005) (0.007) (0.099)
NLTA − 0.190*** − 0.006 − 0.024*** − 0.665*** − 0.176*** − 0.006 − 0.022*** − 0.652***
(0.017) (0.004) (0.005) (0.070) (0.017) (0.004) (0.005) (0.069)
LIQ − 0.058*** − 0.004 0.008* − 0.129** − 0.044*** − 0.004 0.011** − 0.120*
(0.015) (0.004) (0.005) (0.065) (0.015) (0.004) (0.005) (0.063)
ROA − 0.519*** − 0.001 − 0.440*** − 3.681*** − 0.535*** − 0.001 − 0.445*** − 3.647***
(0.033) (0.009) (0.011) (0.147) (0.032) (0.008) (0.010) (0.145)
INF − 0.121 − 0.039 0.026 0.275 − 0.259** − 0.005 − 0.021 − 0.182
(0.116) (0.043) (0.045) (0.587) (0.114) (0.043) (0.045) (0.588)
GDPpc 0.024 − 0.007 0.184*** 1.963*** 0.056 − 0.011 0.190*** 1.992***
(0.087) (0.024) (0.030) (0.399) (0.085) (0.024) (0.030) (0.392)
CON − 0.013 − 0.001 − 0.007** − 0.056 − 0.014 − 0.002 − 0.005 − 0.035
(0.009) (0.003) (0.003) (0.046) (0.009) (0.003) (0.003) (0.046)
α0 31.394*** 1.033 8.539*** 110.552*** 18.835*** 1.861* 6.073*** 76.114***
(2.972) (0.755) (0.971) (12.819) (3.859) (1.029) (1.357) (17.811)
Obs. 3199 2503 3588 3579 3276 2559 3656 3647
R-squared 0.583 0.549 0.596 0.435 0.584 0.548 0.615 0.435
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes Yes Yes

Note: This table shows the outcome of regression Eqs. (1) and (2) using alternative proxies of bank risk-taking as dependent variables for robustness. For the dependent
variables in place of the Default Risk (Z-score). Columns (1) and (5) credit risk is measured as bank non-performing loan to total loans ratio and denoted by NPL.
Columns (2) and (6) operational risk are calculated as the volatility of the net interest margin and denoted by σ(NIM). Columns (3) and (7) portfolio risk is ROA divided
by the standard deviation of ROA and denoted by σ(ROA). Columns (4) and (8) leverage risk is the equity to assets ratio divided by the standard deviation of ROA and
denoted by σ(ROE). Robust Standard errors are clustered at the bank level and reported in parenthesis; ***, ** and * stand for statistical significance at 0.01, 0.05 and
0.1.

(Bilgin et al., 2021; Demir & Danisman, 2021; Wu et al., 2020a, 2020b,
Wu, Li, et al., 2021a, 2021b; Zhang, Li, & Ortiz, 2021). This technique
controls the existence of unobserved bank-specific impacts and the
endogeneity of explanatory variables(Mateev & Bachvarov, 2021). The
System GMM approach account first difference in removing the ex­
pected correlation between the lagged dependent variable and the error
term, whereas dealing with endogeneity through instrumenting the
endogenous and predetermined variable with their lags. The reliability
of the GMM system is due to the assumption that the term error is not
autocorrelated. Therefore, the system GMM model is based on two
essential conditions. Firstly, to confirm the validity of the instruments,
the Hansen test for over-identification restrictions is used. At the same
time, the second test applies to validate the non-autocorrelation hy­
pothesis. However, the presence of the first-order auto-correlation didn't
show inconsistencies in the measure. This one was confirmed by second-
order autocorrelation. For further accuracy, the two-step system GMM
approach is appropriate for dealing with possible endogeneity issues
(Albaity, Mallek, & Noman, 2019; Al-Shboul, Maghyereh, Hassan, &
Molyneux, 2020). Columns 3 and 4 in Table 7 report our results using
GMM estimators. The coefficient of lagged dependent variable is posi­
tively significant, which verifies the persistence of risk from one year to
the next. This finding is similar to the previous outcome and shows that
the ECU and GPU enhance the bank risk and remains unchanged.
Moreover, AR (2) and Hansen J statistics are insignificant, showing no
second-order autocorrelation among errors and overidentifying re­
strictions are valid, respectively.
5.4. Role of bank heterogeneity
To understand whether the effect of economic and geopolitical risk
on banks' default risk is contingent upon bank heterogeneity. For this
purpose, we further examine bank-level heterogeneity by concentrating
on particular bank-level features and considering the role of bank size,
capitalization, liquidity, and profitability. The results are presented in
Table 8. First, we add the interaction term for ECU and GPU with bank
size in our baseline model. Results are reported in Columns 1 and 5,
respectively, which show that the coefficient for both interaction terms
is statistically significant. Thus, we conclude that the bank size mitigates
the adverse effect of economic and geopolitical uncertainty on bank risk.
This means that large banks have taken better advantage of economies
of scale, diversified their income sources and investment opportunities
linked with less risky activities, and have a greater capacity to manage
their risks.
Second, we analyzed whether capitalization plays a role in deter­
mining that economic and geopolitical uncertainty affects the bank's
risk. However, the outcome shows that the coefficient of bank capitali­
zation interaction terms with ECU and GPU is statistically insignificant
in Columns 2 and 6. Therefore, we conclude that economic and geopo­
litical uncertainty's adverse effect on bank risk does not change with
capitalization when proxied by equity-to-total assets. Next, we incor­
porate the interaction term for bank liquidity with ECU and GPU to
ascertain whether a bank's liquidity position shapes the bank's risk to
economic and geopolitical uncertainty. The finding in Columns 3 and 7

11
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 6
Alternative measure of economic and geopolitical uncertainty.
Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6)

ZSC ZSC ZSC ZSC ZSC ZSC

ECU2 − 1.910***
(0.491)
ECU3 − 2.173***
(0.375)
Δ ECU − 0.269***
(0.067)
GPU2 − 0.622***
(0.129)
GPU3 − 0.890***
(0.131)
Δ GPU − 0.203**
(0.092)
SIZ 0.556*** 0.557*** 0.344*** 0.468*** 0.465*** 0.367***
(0.069) (0.069) (0.087) (0.071) (0.071) (0.119)
CAP 0.044*** 0.044*** 0.052*** 0.040*** 0.040*** 0.069***
(0.005) (0.005) (0.001) (0.005) (0.005) (0.002)
NLTA 0.011*** 0.011*** 0.171** 0.011*** 0.010*** 0.173*
(0.004) (0.004) (0.077) (0.004) (0.004) (0.103)
LIQ 0.001 0.001 0.078 − 0.000 − 0.000 0.071
(0.004) (0.004) (0.163) (0.004) (0.004) (0.091)
ROA 0.094*** 0.094*** 0.254* 0.094*** 0.094*** 0.461*
(0.008) (0.008) (0.141) (0.008) (0.008) (0.269)
INF 0.025 0.024 0.157 0.076** 0.077** 0.028
(0.034) (0.034) (0.160) (0.035) (0.035) (0.040)
GDPpc 0.015 0.014 0.117 − 0.000 − 0.002 − 0.051
(0.023) (0.023) (0.132) (0.023) (0.023) (0.047)
CON 0.009*** 0.009*** 0.048*** 0.006** 0.006** 0.026***
(0.003) (0.003) (0.001) (0.003) (0.003) (0.000)
α0 − 2.106*** − 2.117*** 2.311* − 0.736 − 0.722 3.568*
(0.728) (0.729) (1.303) (0.777) (0.785) (1.835)
Obs. 3953 3953 3953 3953 3953 3953
R-squared 0.426 0.426 0.262 0.429 0.429 0.232
Bank FE Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes

Note: This table presents our baseline regression models (1) and (2) findings for the effect of economic uncertainty and geopolitical risk on bank risk. The dependent
variable is bank risk (ZSC), measured as Z-Score. Colum (1) to (3) in Panel A represent the result of an alternative measure of economic uncertainty, while Colum (4) to
(6) in Panel B reports the finding of an alternative measure of geopolitical uncertainty. All estimations are conducted by using the fixed-effects estimator. Standard
errors are clustered at the bank level and reported in parenthesis; ***, **, and * stand for statistical significance at 0.01, 0.05, and 0.1.

shows that the bank with a better liquidity position weakens the detri­
mental effect of economic and geopolitical uncertainty on bank risk.
Finally, we incorporate bank profitability as a potential factor in eco­
nomic and geopolitical uncertainty on bank risk. The evidence presented
in columns 4 and 8 shows that the coefficient interaction terms of bank
profitability are statistically significant with ECU and GPU, which shows
that the adverse impact of economic and geopolitical uncertainty on
bank risk does not vary with bank profitability level when proxied by
return on assets.
5.5. Role of the regulatory environment
Banks are naturally more ambiguous than the other firms because the
risks related to their intermediation procedure are difficult to observe
from the outside (Nguyen, 2021). Given their inherent characteristics,
when the bank's profits are reduced during high economic and geopo­
litical uncertainty, banks manager might have more incentives to take
more risks (Dell’Ariccia et al., 2014). Therefore, in this regard, tighter
banking capital regulation and supervision can stop unnecessary risk-
taking behavior and force them to hold higher capital cushions, thus
increasing their ability to absorb losses effectively (Bermpei, Kalyvas, &
Nguyen, 2018; Le, Nasir, & Huynh, 2020). Nguyen et al. (2021) and
Shabir et al. (2021) argue that a better regulation environment reduces
the negative impacts of economic policy uncertainty on bank stability. In
comparison, Bordo, Duca, and Koch (2016) demonstrate that the
adverse effect of economic policy uncertainty is loser on well-capitalized
banks. For that reason, we considered the comprehensive banking reg­
ulatory environment to draw a more accurate picture by examining the
effect of economic uncertainty and geopolitical uncertainty on the bank
risk/stability nexus. For this purpose, we follow Nguyen et al. (2021)
and Shabir et al. (2021) and include (i) activity restrictions index, (ii)
capital stringency index, and (iii) private monitoring index (PMI) to
control the regulatory environment that significantly influences bank
risk-taking behavior.7 The activity restriction index (RES) considers the
level at which a country limits banks' participation in insurance, secu­
rities, and real estate activities. The capital stringency index (CSI) as­
sesses the minimum capital that banks require to must hold against their
risk-weighted assets. However, the private monitoring index (PMI) de­
termines the extent to which a country's regulatory and supervisory
policies support private investors to keep an eye on the actions and
governance of banks. Table 9 represents the effect of economic and
geopolitical uncertainty on bank risk after controlling the regulatory
environment. This result remains consistent after including the regula­
tory variables in the model. The capital stringency and private moni­
toring coefficients are significantly positive in all estimations, which
proposes that tight capital regulations and private monitoring reduce
the bank default risk and improve bank stability. This result is consistent
7
Our main goal is to control the banking regulatory environment, and not to
determin the effects of these regulatory environments on the sample countries
banking sector.

12
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 7
Alternative Methodology.
Panel A: Economic uncertainty Panel B: Geopolitical risk Panel C: Economic uncertainty Panel D: Geopolitical risk

(1) (2) (3) (4)

ZSC ZSC ZSC ZSC

L.ZSC 0.256*** 0.295***

(0.041) (0.035)
ECU − 0.186*** − 0.101*
(0.018) (0.054)
GPU − 0.159*** − 0.481**
(0.013) (0.2)
SIZ 0.098*** 0.085*** 0.193 0.283***
(0.014) (0.023) (0.219) (0.07)
CAP 0.015*** 0.013*** 0.032*** 0.036***
(0.003) (0.003) (0.01) (0.007)
NLTA 0.009*** 0.01*** 0.008* 0.004
(0.002) (0.003) (0.004) (0.005)
LIQ 0.001 − 0.001 0 − 0.001
(0.002) (0.003) (0.004) (0.004)
ROA 0.102*** 0.111*** 0.098*** 0.109***
(0.01) (0.012) (0.013) (0.014)
INF − 0.187** − 0.182*** − 0.121 − 0.071
(0.075) (0.06) (0.081) (0.095)
GDPpc 0.235*** 0.237*** 0.021 − 0.023
(0.08) (0.073) (0.035) (0.04)
CON 0.014*** 0.018*** 0.01 − 0.005
(0.003) (0.005) (0.008) (0.013)
α0 3.104** 2.884* 0.656 2.821*
(1.308) (1.609) (2.052) (1.578)
Observations 3553 3634 3629 3703
R-squared 0.127 0.111
Tests of endogeneity
Durbin (score) 9.842*** 11.791***
Wu-Hausman 9.841*** 11.787***
Tests of overidentifying restrictions
Sargan (score) 126.474 51.038
Basmann 126.375 51.037
First-stage regression summary statistics
Min. eigenvalue 12.975*** 16.908***
AR(1) 0.000 0.000
AR(2) 0.524 0.203
Hansen 0.898 0.794

Note: This table shows the outcome of our baseline regression Eq. (1) and (2) by using the 2SLS and two-step System GMM regression for robustness test. The dependent
variable is bank risk (ZSC), measured as Z-Score. Panel A and C represent the result of economic uncertainty, while Panel B and D report the finding of geopolitical
uncertainty. Standard errors are clustered at the bank level and reported in parenthesis; ***, **, and * stand for statistical significance at 0.01, 0.05, and 0.1.

with previous literature by Shabir et al. (2021), Bermpei et al. (2018),
and Nguyen et al. (2021), who have shown that strict capital regulation
motivates banks to maintain higher capital cushion against uncertain
economic shocks, while the strong market discipline enhances disclosure
requirement and allows the private investor to exercise their governance
on bank operations more effectually. On the other hand, bank activity
restriction is statistically insignificant. The coefficients of ECU and GPU
interaction terms with bank regulatory and supervisory variables are a
significantly positive sign. These outcomes show that strong bank
regulation and supervision environment decreases the detrimental im­
pacts of economic and geopolitical uncertainty on bank risk.
5.6. Additional Sensitivity analyses
This section further extends our analysis toward different dimensions
for robustness checks. In this regard, firstly, we re-estimate the basic
equation after adding the dummy variable of the Islamic bank. The Is­
lamic banking sector has grown over the years and is considered one of
the fastest-growing areas of the global financial industry (Bilgin et al.,
2021; Meslier et al., 2020). From a theoretical point of view, the contract
between a bank and its customers is extremely contrasting for conven­
tional and Islamic banks. In most empirical studies, Islamic banks' suc­
cess has been attributed to the source of Shariah principles that strictly
prohibit the receipt and payment of interest and support risk-sharing
businesses (Meslier et al., 2020). Ali 2011 highlights the two main
reasons that helped Islamic banks keep on stable during the crisis's initial
phase: (i) Islamic banks' financial activities are highly related to real
economic activities compared to their traditional counterpart, and (ii)
Compared to the conventional bank, Islamic bank have retained a larger
portion of their assets in liquid form. Hence, to check whether economic
and geopolitical uncertainty impact bank risk and stability significantly
differ between Islamic and conventional banks. Therefore, for this pur­
pose, following the study of Al-Shboul et al. (2020) and Bilgin et al.
(2021), we create a dummy variable IB that takes the value one if the
bank is Islamic and 0 otherwise. Columns 1 and 8 in Table 10 show how
Islamic banks react to economic and geopolitical uncertainty, respec­
tively. The coefficients of IB and its interaction term with ECU and GPU
are statistically insignificant, representing that both economic and
geopolitical uncertainty does not significantly influence Islamic banks.
Moreover, previous studies have revealed that listed banks are
relatively less risky than unlisted banks because of regulatory pressures
and capital market requirements. Thus, we follow Barry, Lepetit, and
Tarazi (2011) and Shabir et al. (2021) and divide the sample into listed
and unlisted banks. Columns 2–3 of Table 10 show the effect of eco­
nomic uncertainty on bank risk for listed and unlisted banks' sub­
samples, while columns 8–10 represent the effect of geopolitical
uncertainty on bank risk for listed and unlisted banks' subsamples. The
outcomes illustrate that economic and geopolitical uncertainty signifi­
cantly impact unlisted banks' risk. In contrast, this effect is statistically
insignificant in the case of listed banks. Furthermore, we are splitting the

13
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 8
The effect of economic and geopolitical uncertainty risk on bank risk-taking: Role of bank heterogeneity.
Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6) (7) (8)

ZSC ZSC ZSC ZSC ZSC ZSC ZSC ZSC

ECU − 0.641*** − 0.012 − 0.293*** − 0.084*

(0.156) (0.064) (0.078) (0.043)
GPU − 0.643*** − 0.457*** − 0.273 − 0.433***
(0.235) (0.154) (0.183) (0.109)

SIZ 0.604*** 0.507*** 0.521*** 0.517*** 0.319* 0.491*** 0.490*** 0.484***

(0.074) (0.070) (0.070) (0.070) (0.178) (0.071) (0.071) (0.071)
CAP 0.041*** 0.032*** 0.043*** 0.043*** 0.041*** 0.034 0.041*** 0.041***
(0.005) (0.009) (0.005) (0.005) (0.005) (0.028) (0.005) (0.005)
NLTA 0.011*** 0.012*** 0.013*** 0.012*** 0.010*** 0.011*** 0.011*** 0.010***
(0.004) (0.004) (0.004) (0.004) (0.004) (0.004) (0.004) (0.004)
LIQ 0.001 0.001 0.014*** 0.002 − 0.001 − 0.000 0.026 − 0.000
(0.004) (0.004) (0.005) (0.004) (0.004) (0.004) (0.025) (0.004)
ROA 0.096*** 0.096*** 0.094*** 0.089*** 0.095*** 0.094*** 0.094*** 0.022
(0.008) (0.008) (0.008) (0.019) (0.008) (0.008) (0.008) (0.080)
INF 0.034 0.030 0.028 0.027 0.071** 0.072** 0.071** 0.072**
(0.035) (0.035) (0.035) (0.035) (0.035) (0.035) (0.035) (0.035)
GDPpc 0.023 0.011 0.011 0.009 0.005 0.007 0.005 0.006
(0.024) (0.024) (0.024) (0.024) (0.023) (0.023) (0.023) (0.023)
CON 0.007*** 0.008*** 0.008*** 0.008*** 0.006** 0.007*** 0.007*** 0.007***
(0.003) (0.003) (0.003) (0.003) (0.003) (0.003) (0.003) (0.003)
WUI*SIZ 0.062***
(0.017)
WUI*CAP − 0.006
(0.004)
WUI*LIQ 0.007***
(0.002)
WUI*ROA − 0.003
(0.010)
GPU*SIZ 0.109***
(0.041)
GPU*CAP 0.002
(0.006)
GPU*LIQ 0.025***
(0.004)
GPU*ROA 0.015
(0.016)
α0 − 2.624*** − 1.738** − 2.468*** − 2.023*** 1.775 0.675 − 0.183 0.649
(0.736) (0.738) (0.732) (0.720) (1.546) (1.088) (1.239) (1.019)
Obs. 3872 3872 3872 3872 3953 3953 3953 3953
R-squared 0.431 0.429 0.430 0.429 0.428 0.428 0.428 0.428
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes Yes Yes

Note: This table reports our baseline regression models (1) and (2) findings for the effect of economic uncertainty and geopolitical risk on bank risk. The dependent
variable is bank risk (ZSC), measured as Z-Score. Panel A represents the result of economic uncertainty, while Panel B reports the finding of geopolitical uncertainty. All
estimations are conducted by using the fixed-effects estimator. Standard errors are clustered at the bank level and reported in parenthesis; ***, **, and * stand for
statistical significance at 0.01, 0.05, and 0.1.

sample into different subsamples, such as state-owned banks vs. private-
owned banks and foreign banks vs. domestic banks. The ownership
structure is one of the most important mechanisms of corporate gover­
nance that directly or indirectly affects bank performance, efficiency,
risk-taking decisions, and lending activity (Çolak & Şenol, 2021; Drakos,
Kouretas, & Tsoumas, 2016). In this regard, recently, some researchers
have examined the impact of different ownership structures on a bank's
risk in different aspects, such as Çolak and Şenol (2021), Dong, Meng,
Firth, and Hou (2014), Drakos et al. (2016), Klein, Maidl, and Woyand
(2021), Lassoued, Sassi, Attia, and M. (2016), Sahul Hamid (2020), and
Zheng, Moudud-Ul-Huq, Rahman, and Ashraf (2017) are a few names.
Especially state-owned banks were found to stabilize credit during the
business cycle, mainly during crises (Sahul Hamid, 2020). Solanko and
Fungacova (2011) show that state-owned banks are more profitable and
less risky in Russia and more efficient in Turkey (Isik & Hassan, 2002)
and India (Bhattacharyya, Lovell, & Sahay, 1997). However, some re­
searchers argue that state-owned banks have a higher insolvency risk
than private ownership due to poor loan quality, less efficiency, inferior
asset growth and long-term performance, higher risk-taking, and less
prudent lending behaviors (Dong et al., 2014; Jia, 2009). Moreover, the
presence of foreign banks is also an important factor. They play a sig­
nificant role in advancing financial development and driving economic
growth, which cannot be underestimated. Recently Drakos et al. (2016)
revealed that the risk-taking attitude is different between foreign and
domestic banks due to less local expertise and fewer local connections
than domestic banks. Therefore, we further broaden our study to
determine whether economic and geopolitical uncertainty affects
foreign vs. domestic and state-owned vs. private-owned banks' bank risk
and stability. For this purpose, we divided our sample into state-owned
banks vs. private-owned banks and foreign banks vs. domestic banks.
The finding is documented in Table 10. Columns 4–5 and 11–12 present
the impact of economic and geopolitical uncertainty on bank risk in
domestic banks vs. foreign banks, respectively. While columns 5–6 and
13–14 report the outcome of economic and geopolitical uncertainty on
bank risk in state-owned banks vs. private-owned banks, respectively.
We further investigate whether the influence of geopolitical and

14
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 9
Regulatory and institutional environment.
Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6)

ZSC ZSC ZSC ZSC ZSC ZSC

ECU − 0.156 − 0.320** − 0.596**

(0.156) (0.151) (0.242)
GPU − 1.701*** − 0.578 − 2.502**
(0.308) (0.509) (1.002)
SIZ 0.496*** 0.479*** 0.482*** 0.397*** 0.465*** 0.438***
(0.077) (0.076) (0.076) (0.077) (0.077) (0.077)
CAP 0.041*** 0.041*** 0.041*** 0.039*** 0.040*** 0.040***
(0.005) (0.005) (0.005) (0.005) (0.005) (0.005)
NLTA 0.012*** 0.012*** 0.011*** 0.010** 0.011*** 0.011***
(0.004) (0.004) (0.004) (0.004) (0.004) (0.004)
LIQ 0.003 0.003 0.002 0.001 0.001 0.001
(0.004) (0.004) (0.004) (0.004) (0.004) (0.004)
ROA 0.095*** 0.095*** 0.095*** 0.095*** 0.094*** 0.094***
(0.008) (0.008) (0.008) (0.008) (0.008) (0.008)
INF 0.011 0.016 − 0.001 0.038 0.052 0.054
(0.036) (0.036) (0.036) (0.037) (0.037) (0.037)
GDPpc 0.010 0.032 0.022 − 0.012 0.008 − 0.003
(0.024) (0.025) (0.024) (0.024) (0.023) (0.024)
CON 0.008*** 0.008*** 0.008*** 0.006** 0.008*** 0.006**
(0.003) (0.003) (0.003) (0.003) (0.003) (0.003)
RES − 0.025 − 0.026 − 0.049* 1.006*** − 0.030 − 0.039
(0.046) (0.029) (0.029) (0.214) (0.029) (0.029)
CSI 0.060*** 0.147*** 0.058*** 0.056*** 0.144*** 0.035*
(0.022) (0.043) (0.022) (0.021) (0.026) (0.021)
PMI 0.202*** 0.191*** 0.087*** 0.223*** 0.193*** 1.325**
(0.047) (0.046) (0.018) (0.045) (0.045) (0.533)
ECU*RES 0.007
(0.020)
ECU*CSI 0.059***
(0.021)
ECU*PMI 0.060**
(0.029)
GPU*RES 0.227***
(0.049)
GPU*CSI 0.023
(0.058)
GPU*PMI 0.258**
(0.121)
α0 0.536 1.194 − 0.042 9.308*** 3.615 12.420***
(0.949) (0.988) (0.988) (1.837) (2.462) (4.687)
Obs. 3718 3718 3718 3799 3799 3799
R-squared 0.438 0.439 0.439 0.440 0.436 0.437
Bank FE Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes

Note: This table reports our baseline regression models (1) and (2) findings for the effect of economic uncertainty and geopolitical risk on bank risk. The dependent
variable is bank risk (ZSC), measured as Z-Score. Panel A represents the result of economic uncertainty, while Panel B reports the finding of geopolitical uncertainty.
Activity restriction (RES) indicates how national regulations allow banks to participate in various activities. Capital regulation (CRI) measures capital regulation
strength. Private monitoring (PMI) represents private sector monitoring. All estimations are conducted by using the fixed-effects estimator. Standard errors are
clustered at the bank level and reported in parenthesis; ***, **, and * stand for statistical significance at 0.01, 0.05, and 0.1.

economic uncertainty on bank risk and stability is contingent upon bank
CEO power and board strength heterogeneity. In this regard, we divide
our sample into different subsamples using CEO power and board
strength. Following the studies of Khan, Ahmed, and Gee (2016) and
Shabir et al. (2021), we split the banks for every country each year. A
bank with a value greater than the country median is classified as highly
CEO tenure, large- board size, higher- independent directors, and more
female and foreign directors. A bank with a value equal to or less than
the country median is classified as having small CEO tenure, a small
board size, fewer independent directors, and fewer female and foreign
directors. Then, we examine bank risk and stability response to fluctu­
ations in geopolitical and economic uncertainty in all the subsamples.
Table 11 presents the results, which show how bank CEO power and
board strength characteristics influence the bank's response to geopo­
litical and economic uncertainty changes. The coefficient of geopolitical
and economic uncertainty is significant and has the expected signs for all
groups of banks; however, the severity of the geopolitical and economic
uncertainty coefficient varies between these groups.
5.7. Impact paths analysis: “bank deposit”
How does geopolitical and economic uncertainty affect bank risk? It
is essential to examine the potential channels and ensure that the results
are not picking up spurious effects. Therefore, in this regard, we deter­
mine whether a significant increase in bank risk may cause a reduction
in bank deposits. The global financial crisis since 2007 has highlighted
the crucial role of liquidity risk management for financial institutions,
with banks defaulting due to a lack of stable funding (Attila, 2022;
Ivashina & Scharfstein, 2010; Ritz & Walther, 2015; Vazquez & Feder­
ico, 2015).
Bank deposits have varied over time and remain an important source
of funds for banks in all countries (Nguyen, 2022). It also plays a vital

15
 M. Shabir et al.
Table 10
Subsample estimations.
Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14)

Islamic Listed Unlisted Domestic Foreign State-owned Private- Islamic Listed Unlisted Domestic Foreign State- Private-
Bank banks banks banks banks banks owned Bank banks banks banks banks owned owned banks
banks banks

ECU − 0.247*** − 0.032 − 0.316*** − 0.073** − 0.121*** − 0.297*** − 0.135**

(0.038) (0.061) (0.060) (0.033) (0.001) (0.028) (0.068)
GPU − 0.280*** − 0.186 − 0.609*** − 0.071 − 0.727** − 0.624* − 0.191***
(0.083) (0.147) (0.178) (0.171) (0.323) (0.340) (0.027)
ISL 0.541 − 1.224
(0.329) (1.556)
ISL*ECU 0.260*
(0.149)
ISL*GPU 0.284
(0.346)
SIZ 0.073*** 0.492*** 0.482*** 0.276*** 0.649*** 0.423** 0.532*** 0.074*** 0.423*** 0.513*** 0.307*** 0.622*** 0.384* 0.534***
(0.014) (0.104) (0.102) (0.093) (0.215) (0.202) (0.109) (0.013) (0.104) (0.104) (0.090) (0.216) (0.203) (0.114)
16

CAP 0.019*** 0.043*** 0.039*** 0.037*** 0.049*** 0.039 0.038*** 0.018*** 0.039*** 0.040*** 0.037*** 0.046** 0.016 0.038***
(0.003) (0.008) (0.007) (0.010) (0.019) (0.037) (0.007) (0.003) (0.008) (0.007) (0.010) (0.018) (0.039) (0.007)
NLTA 0.007*** − 0.004 0.023*** 0.006 − 0.004 0.022 0.014** 0.006*** − 0.005 0.022*** 0.005 − 0.004 0.026 0.015***
(0.002) (0.006) (0.006) (0.005) (0.016) (0.021) (0.006) (0.002) (0.006) (0.006) (0.005) (0.016) (0.021) (0.006)
LIQ − 0.002 − 0.003 0.003 − 0.005 − 0.026* − 0.007 − 0.003 − 0.002 − 0.005 0.002 − 0.006 − 0.024* − 0.003 − 0.002
(0.002) (0.006) (0.005) (0.005) (0.014) (0.019) (0.006) (0.002) (0.005) (0.005) (0.005) (0.014) (0.019) (0.006)
ROA 0.106*** 0.078*** 0.099*** 0.123*** 0.166*** 0.223*** 0.086*** 0.103*** 0.079*** 0.098*** 0.123*** 0.162*** 0.217*** 0.086***
(0.007) (0.015) (0.011) (0.019) (0.038) (0.037) (0.011) (0.007) (0.015) (0.010) (0.019) (0.038) (0.037) (0.011)
INF − 0.126*** − 0.009 0.057 0.058 − 0.085 − 0.035 − 0.056 − 0.141*** 0.036 0.077 0.054 − 0.023 − 0.010 − 0.012
(0.028) (0.056) (0.046) (0.040) (0.099) (0.066) (0.059) (0.028) (0.055) (0.047) (0.039) (0.096) (0.067) (0.061)
GDPpc 0.123*** 0.025 0.006 − 0.038 0.088 − 0.074 0.032 0.141*** 0.014 0.008 − 0.033 0.082 − 0.079 0.024
(0.021) (0.036) (0.033) (0.032) (0.078) (0.064) (0.036) (0.021) (0.036) (0.033) (0.031) (0.078) (0.062) (0.036)

International Review of Financial Analysis 87 (2023) 102603

CON 0.016*** 0.006* 0.010*** 0.006** 0.006 0.026*** 0.004 0.014*** 0.005 0.010*** 0.007** 0.007 0.028*** 0.004
(0.002) (0.004) (0.004) (0.003) (0.008) (0.007) (0.006) (0.002) (0.003) (0.004) (0.003) (0.008) (0.007) (0.006)
α0 2.059*** − 0.616 − 2.404** 1.014 − 1.428 − 2.834 − 1.310 4.099*** 3.135** − 1.511 1.143 2.027 0.432 − 0.248
(0.295) (1.124) (1.014) (1.031) (2.583) (2.325) (0.998) (0.473) (1.522) (1.455) (1.321) (3.263) (2.967) (1.529)
Obs. 3872 1807 2050 2372 488 417 1791 3953 1841 2097 2432 505 423 1805
R-squared 0.167 0.447 0.455 0.369 0.448 0.563 0.430 0.160 0.447 0.455 0.365 0.451 0.562 0.431
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Note: Standard errors are in parenthesis; *** p < 0.01, ** p < 0.05, * p < 0.1; FE indicates Fixed Effect; Obs is observation. All variables are defined in Appendix Table A.
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 11
CEO power and board strength subsample estimations.
Panel A: Economic uncertainty

(1) (2) (3) (4) (5) (6) (7) (8)

EOD = 1 CEOD = 0 CEOT = High CEOT = Low CEOF = 1 CEOF = 0 CEOO = 1 CEOO = 0
ECU − 0.016*** 0.149*** − 0.041** − 0.129*** − 0.132 − 0.217* − 0.154*** − 0.597**
(0.001) (0.019) (0.019) (0.039) (0.112) (0.115) (0.003) (0.252)
Control variables Yes Yes Yes Yes Yes Yes Yes Yes
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes
Time FE Yes Yes Yes Yes Yes Yes Yes Yes
α0 6.905** 3.867*** − 0.120 − 12.012*** − 3.851*** 5.151*** − 3.626*** 5.413***
(6.917) (0.272) (0.951) (0.933) (0.788) (0.589) (0.156) (1.117)
Observations 1233 1251 1521 1951 1318 1448 1723 1261
R-squared 0.113 0.336 0.310 0.270 0.270 0.450 0.187 0.427

Panel B: Geopolitical risk

(1) (2) (3) (4) (5) (6) (7) (8)

CEOD = 1 CEOD = 0 CEOT = High CEOT = Low CEOF = 1 CEOF = 0 CEOO = 1 CEOO = 0
ECU − 0.028* 0.162** − 0.153*** − 0.319*** 0.040 − 0.237 − 0.068** − 0.330***
(0.016) (0.065) (0.022) (0.020) (0.060) (0.490) (0.035) (0.012)
Control variables Yes Yes Yes Yes Yes Yes Yes Yes
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes
Time FE Yes Yes Yes Yes Yes Yes Yes Yes
α0 6.682*** 1.302 − 3.228*** 11.031*** 3.151*** 5.318** 2.725 5.639***
(0.629) (0.845) (1.213) (0.788) (0.714) (2.136) (2.042) (1.564)
Observations 2524 1372 2663 2490 2766 1502 1909 1904
R-squared 0.126 0.490 0.126 0.640 0.440 0.323 0.257 0.119

Panel C: Economic uncertainty

(1) (2) (3) (4) (5) (6) (7) (8)

BS=High BS = Low IND=High IND = Low FEMD=High FEMD = Low FORD=High FORD = Low

ECU − 0.247* − 0.596** − 0.055*** − 0.205*** − 0.032* − 0.013** − 0.005 − 0.001**

(0.134) (0.278) (0.013) (0.037) (0.018) (0.003) (0.004) (0.000)
Control variables Yes Yes Yes Yes Yes Yes Yes Yes
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes
Time FE Yes Yes Yes Yes Yes Yes Yes Yes
α0 6.605*** 2.624*** − 4.207*** − 12.677*** 3.635*** 5.943*** − 3.821*** 4.237***
(0.101) (0.137) (0.108) (0.624) (0.052) (0.412) (0.418) (1.114)
Observations 2238 1227 2379 2125 1838 2290 1986 1992
R-squared 0.091 0.132 0.111 0.079 0.094 0.228 0.021 0.192

Panel D: Geopolitical risk

(1) (2) (3) (4) (5) (6) (7) (8)

BS=High BS = Low IND=High IND = Low FEMD=High FEMD = Low FORD=High FORD = Low

ECU − 0.031** − 0.281** − 0.088*** − 0.125** − 0.007* − 0.041*** − 0.224 − 0.638*

(0.012) (0.132) (0.032) (0.062) (0.004) (0.010) (0.259) (0.364)
Control variables Yes Yes Yes Yes Yes Yes Yes Yes
Bank FE Yes Yes Yes Yes Yes Yes Yes Yes
Time FE Yes Yes Yes Yes Yes Yes Yes Yes
α0 6.905** − 1.458 4.042 13.316*** 3.742*** 3.951*** 2.482*** − 4.923***
(2.765) (2.572) (3.368) (1.173) (0.733) (0.127) (0.144) (0.883)
Observations 1766 1466 1765 1222 2065 2005 1180 2418
R-squared 0.467 0.237 0.396 0.142 0.337 0.292 0.149 0.131

Note: Standard errors are in parenthesis; *** p < 0.01, ** p < 0.05, * p < 0.1; FE indicates Fixed Effect; Obs is observation. All variables are defined in Appendix
Table A.

17
M. Shabir et al.
role in the aggregate funding structure of the economy and recent sol­
vency turbulences (Acharya & Mora, 2015; Huang & Ratnovski, 2011).
Banks' ability to maintain financing during the crisis depends on the
stability of their deposits. Deposit variability is not only “a banker's
headache” (Attila, 2022) but also a major concern for regulators as it is
closely related to the liquidity risk and risk-taking of banks (Streit,
Lange, & Paul, 2018). The unpredictable deposit fluctuations can hinder
the performance of banks and their role as liquidity providers (Diamond
& Dybvig, 1983).
Geopolitical and economic uncertainty disrupts economic activities
and creates uncertainty. This uncertainty is likely conducive to runs
from depositors who get anxious and anticipate deposit withdrawals
from others (Diamond & Dybvig, 1983; Shin, 2009). Specifically,
(Gorton, 1988) argues that bank panics are strongly linked to business
cycles. Attila (2022) recently showed that during political instability
times, bank deposits can drop, as is the case during the recent financial
crises (Han & Melecky, 2013), and as a consequence, the increase in its
volatility.
Therefore, we re-examine the Model using path analysis to analyze
how the path of geopolitical and economic uncertainty affects bank risk.
Path analysis is a common method to compare independent variables'
direct and indirect effects on dependent variables(Shen, Liang, et al.,
2021; Shen, Zheng, et al., 2021). So, we follow Shen, Liang, et al. (2021),
Shen, Zheng, et al. (2021) and rearrange our base model as follows
ZSCijt = β1 UCTjt + β2 DEPijt− 1 + ΩXit + θZjt + μi + δt + εit (5)
DEPijt = ρ1 UCTjt + ΩXit + θZjt + μi + δt + εit (6)
In models (5) and (6) ZSCijt is a proxy for the dependent variable,
representing the bank default risk. UCTjt is our main independent vari­
able to measure the geopolitical and economic uncertainty index. DEPijt
indicate the bank deposit. While Xit and Zjt are a vector of bank-level and
country-level macroeconomic control variables defined as the same
above. According to path analysis, our paper designs Model (5) and
Model (6) to analyze the influence impact of the bank deposit path. The
coefficient of β1 in a model (5) represents the direct impact of geopo­
litical and economic uncertainty on bank risk, and the coefficient of
β2*ρ1 represents the impact degree of geopolitical and economic un­
certainty on bank risk through bank channels (Shen, Liang, et al., 2021;
Shen, Zheng, et al., 2021), which are shown in Table 12.
Panel A represents the regression results of model (5). Columns (1)
and (2) tabulate the regression results of independent variables ECU and
GPU, respectively. However, DEP, a variable of bank deposit, is added to
the Model. The results show that geopolitical and economic uncertainty
is significantly negative with bank risk, and bank deposit is significant
with bank risk. Panel B reports the regression results of Model (6). The
dependent variable is a bank deposit, and the independent variable is
geopolitical and economic uncertainty. Columns (1) and (2) indicate the
regression results of independent geopolitical and economic uncertainty
variables, respectively. The results show that geopolitical and economic
uncertainty negatively affects bank deposit levels. Panel C shows the
impact of the bank deposit path on bank risk, combined with the results
of Panel A and Panel B. These outcomes demonstrate the effect of
geopolitical and economic uncertainty affecting bank risk through bank
deposit path accounting for 21.349% and 19.217%, respectively. All
these results support that geopolitical and economic uncertainty mainly
affects bank risk through the path of bank deposits.
5.8. Role of bank competition
Competition is the surviving environment and a common phenom­
enon in various industries, including the banking industry in the market
economy. In recent years, the external economic environment faced by
the banking industry has been complex and unstable (Shabir et al.,
2021). At the same time, competition among banks has become
increasingly intense. Therefore, the impact of bank competition on
18
International Review of Financial Analysis 87 (2023) 102603
stability has always been a subject of widespread concern and discussion
by scholars and policymakers. Thus, recently some studies have
concluded that bank competition has positive effects on stability, while
others argue that there are adverse effects of increased competition. This
divergence of views has led to structuring literature into two paradigms.
The first view, called competition-fragility and supported by the pio­
neering work of Keeley (1990) and Marcus (1984), believes that
competition will increase the risk of banks (Leroy & Lucotte, 2017) and
reduce the value of franchises (Hellmann, Murdock, & Stiglitz, 2000),
which will reduce bank income and lead to bank instability. While the
second view, called the ‘competition-stability’ view and developed by
(Boyd & De Nicoló, 2005), believed that fierce competition reduces the
bank's liquidity risk (Kim, 2018) and systemic risk (Leroy, 2019), which
is conducive to improving bank stability.
Therefore, to draw a more precise conclusion regarding the geopo­
litical and economic uncertainty and bank risk nexus, we investigate
whether the competitive environment moderates the impact of geopo­
litical and economic uncertainty on bank risk. In this regard, to measure
the degree of bank competition (LER) in the banking sector, we used the
Lerner index to estimate banking market power.8 In the recent literature,
the Lerner index is most widely used as a proxy of competition9 (Beck,
De Jonghe, & Schepens, 2013; Berger, Klapper, & Turk-Ariss, 2009;
Shabir et al., 2021).
Therefore the impact of bank competition on the geopolitical and
economic uncertainty-bank risk nexus is reported in Table 13. The re­
sults show that bank risk and stability are significantly affected by bank
competition. We have observed a positive and significant relationship
between bank competition and its interaction with bank risk. This in­
dicates that the banking market power decreases bank risk. In other
words, the lower the competition, the lower the bank's risk-taking. These
findings are consistent with earlier empirical studies (Anginer,
Demirguc-Kunt, & Zhu, 2014; Fu, Lin, & Molyneux, 2014; Leroy &
Lucotte, 2017; Louhichi, Louati, & Boujelbene, 2020) and support the
traditional “competition-fragility” view. The results can be explained by
the fact that more bank competition erodes market power, decreases
profit margins, and reduces franchise value which encourages bank risk-
taking. At the same time, the significantly positive interactions of bank
competition with geopolitical and economic uncertainty imply that
higher bank competition increases the adverse impact of geopolitical
and economic uncertainty on bank risk. This can be explained by the fact
that uncertainty raises future inflation and the cost of external financing
(Brogaard & Detzel, 2015a, 2015b; Pástor & Veronesi, 2013a, 2013b),
and reduces firm-level investment (Baker et al., 2016a, 2016b; Gulen &
Ion, 2016), which considerably affects businesses' credit demand from
banks and decreases bank lending and profitability. Therefore, banks are
looking for additional resources in a highly competitive environment,
encouraging them to adopt more risky policies and invest in highly risky
assets to maintain their past profits, ultimately increasing financial
fragility (González, Razia, Búa, & Sestayo, 2017).
6. Conclusions
This study examines whether economic and geopolitical uncertainty
relatively influences bank risk by using a sample of 574 banks from 19
countries for 2009–2020. We use the World Uncertainty Index from Ahir
et al. (2018) and the Geopolitical Risk Index, which was constructed by
Caldara and Iacoviello (2018), to measure economic and geopolitical
8
For more details, refer Appendix B
9
We have, following the new industrial organization (IO) approach, applied
the Lerner Index as a bank competition. We think the Lerner Index is a more
appropriate measure for our study because compared to other non-structural
approaches, it is estimated for each and every individual bank for each year.
Furthermore, the Learner Index has been used extensively in recent studies to
examine bank competition (Beck et al., 2013).
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 12
Impact of Economic and geopolitical uncertainty on bank risk. Path analysis.
Panel A: the regression result

Panel A: Economic uncertainty Panel B: Geopolitical risk

(1) (2)

ZSC ZSC

ECU − 0.087***
(0.037)
GPU − 0.028***
(0.001)
Dep 0.227** 0.244***
(0.089) (0.086)
SIZ 0.529*** 0.499***
(0.000) (0.077)
CAP 0.048*** 0.049***
(0.004) (0.004)
NLTA 0.012*** 0.010***
(0.004) (0.004)
LIQ 0.088*** 0.087***
(0.006) (0.010)
ROA 0.094*** 0.094***
(0.007) (0.007)
INF 0.085* 0.073**
(0.048) (0.035)
GDPpc 0.064 0.172
(0.070) (0.475)
CON 0.009*** 0.007***
(0.002) (0.002)
α0 0.569 0.569
(1.010) (1.010)
Obs. 3953 3953
R-squared 0.428 0.428
Bank FE Yes Yes
Year FE Yes Yes

Panel B: the regression result

(1) (2)

DEP DEP

ECU − 0.779**
(0.316)
GPU − 0.549***
(0.074)
SIZ 0.230** 0.201**
(0.115) (0.089)
CAP 0.332*** 1.326*
(0.102) (0.719)
NLTA 0.042 0.039
(0.043) (0.053)
LIQ 0.251** − 0.450***
(0.110) (0.086)
ROA 0.321** 1.333*
(0.160) (0.739)
INF − 0.606* − 0.278*
(0.355) (0.164)
GDPpc 0.103 − 0.731
(0.170) (1.033)
CON 0.199 0.627
(0.120) (0.682)
α0 3.410 5.108***
(2.774) (0.676)
Obs. 3953 3953
R-squared 0.326 0.330
Bank FE Yes Yes
Year FE Yes Yes

Panel C: The proportion affected by each path

ECU
(1)Direct impact of ECU on ZSC Regression coefficient
ECU → ZSC − 0.087***
(0.037)
(continued on next page)

19
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Table 12 (continued )
Panel C: The proportion affected by each path

(2)The indirect impact of ECU on ZSC through DEP

ECU → DEP − 0.779**
(0.316)
DEP → ZSC 0.227**
(0.089)
Indirect effect of DEP path 0.177
(3)Overall impact of ECU on ZSC 0.264
Impact ratio of the path DEP (%) 21.349%
Impact ratio of other channels (%) 78.651%
GPU
(1)Direct impact of ECU on ZSC Regression coefficient
GPU → ZSC − 0.428***
(0.109)
(2)The indirect impact of GPU on ZSC through DEP
GPU → DEP − 0.549***
(0.074)
DEP → ZSC 0.244***
(0.086)
Indirect effect of DEP path 0.134
(3)Overall impact of GPU on ZSC 0.162
Impact ratio of the path DEP (%) 19.217%
Impact ratio of other channels (%) 80.783%

Note: Standard errors are in parenthesis; *** p < 0.01, ** p < 0.05, * p < 0.1; FE indicates Fixed Effect; Obs is observation.

adverse impact of economic and geopolitical uncertainty on bank risk.

Table 13 We have used the different proxies for CEO power (e.g., CEO duality,
Role of bank competition. CEO founder, CEO ownership, CEO tenure) and board strength (e.g., the
Panel A: Economic uncertainty Panel B: Geopolitical risk board size, independent directors, female directors, and foreign di­
(1) (2) rectors). Besides this, we also extract components using the data
reduction technique Principle Component Analysis (PCA) to combine
ZSC ZSC
these variables into a one-dimensional index for CEO power and board
ECU − 0.431*** strength separately. The results show that powerful CEOs and strong
(0.068)
ECU*LER 0.097***
bank boards play a crucial role in mitigating the adverse effects of
(0.011) economic and geopolitical uncertainty on bank risk.
GPU − 0.379** In addition, we perform various robustness checks, take the addi­
(0.156) tional bank risk proxies, use the alternative economic and geopolitical
GPU*LER 0.291***
uncertainty measure, and address endogeneity (GMM and 2SLS esti­
(0.048)
LER 0.416** 0.605*** mations). Furthermore, for a more comprehensive analysis, we deter­
(0.194) (0.208) mine the impact of bank-level heterogeneity by concentrating on the
SIZ 0.093*** 0.869*** role of balance sheet characteristics such as bank size, capitalization,
(0.024) (0.127) liquidity, and profitability. Our main finding only holds for banks with
CAP 0.519*** 0.146***
(0.038) (0.016)
large sizes, high liquidity, and more profitable banks. Besides this,
NLTA 0.033** 0.265*** additional analysis on bank characteristics shows that the risk of listed
(0.017) (0.045) banks vs. unlisted banks, domestic banks vs. foreign banks, and state-
LIQ 0.638* 0.255*** owned banks vs. private-owned banks are responded to in different
(0.364) (0.055)
ways by economic and geopolitical uncertainty.
ROA 0.226*** 0.473**
(0.035) (0.188)
INF 0.032* 0.051** Declaration of Competing Interest
(0.017) (0.021)
GDPpc 0.012 0.007
All Authors declare that they have no conflict of interest.
(0.009) (0.008)
CON 0.015* 0.052**
(0.008) (0.021) Data availability
α0 − 5.753*** − 3.669***
(0.293) (0.647) Data will be made available on request.
Obs. 6690 5848
R-squared 0.231 0.252
Bank FE Yes Yes Acknowledgments
Year FE Yes Yes
Ping Jiang acknowledges the financial support from the National
Note: Standard errors are in parenthesis; *** p < 0.01, ** p < 0.05, * p < 0.1; FE
indicates Fixed Effect; Obs is observation. Natural Science Foundation of China (Grant number 72073024) and
“the Fundamental Research Funds for the Central Universities” in Uni­
versity of International Business and Economics (UIBE) (CXTD12-03).
uncertainty, respectively. We find that increasing economic and Yasir Shahab acknowledges the financial support from the “National
geopolitical uncertainty significantly enhances the bank risk and Natural Science Foundation of China” for “Research Fund for Interna­
worsens stability. tional Young Scientists”, Grant Number: 72150410446 and “Funds for
Moreover, we expanded our study to consider whether CEO power High-Level Talents of Xijing University (2019)”, Grant Number:
and board strength have played a moderate role in mitigating the XJ19B02.

20
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

Appendix A. Variable description and sources

Variable Definition Source

Dependent variables
Default risk (Z-score)
Credit risk (NPL)
Operation risk (σNIM)
Portfolio risk (σROA)
Leverage risk (σROE)
Natural logarithm of the Z-score. A high Z-score value shows that the bank is more stable and Authors' calculation based on Bankscope
vice versa.
Non-performing loans to total loans ratio. Authors' calculation based on Bankscope
Ln (Sd. of net interest margin) Authors' calculation based on Bankscope.
Ln [ROA/Sd. (ROA)] Authors' calculation based on Bankscope.
Ln [Equity to assets ratio/ Sd. (ROA)] Authors' calculation based on Bankscope.

Explanatory variables
Economic uncertainty (ECU)
Geopolitical uncertainty
(GPU)
CEO duality (CEOD)
CEO founder (CEOF)
CEO ownership (CEOO)
CEO tenure (CEOT)
Board size (BS)
Independent directors (IND)
Female director (FEMD)
Foreign directors (FORD)
Size (SIZ)
Capital (CAP)
Liquidity (LIQ)
banks' portfolio (NLTA)
Profitability (ROA)
GDP per capita growth
(GDPpc)
Inflation (INF)
Concentration ratio (CON)
Note: This table defines the variables used in regression analysis. * World Bank global financial development database (GFDD).
Average quarterly country-specific World Uncertainty index. Ahir et al. (2018)
Average monthly country-specific Geopolitical Risk Index.(Caldara & Iacoviello, 2018) Caldara and Iacoviello (2018)
A dummy variable which equals one if the CEO is also the chair of the board and 0 otherwise. Authors' calculation from different sources
A dummy variable which equals one if a CEO is one of the firm's founders and 0 otherwise. Authors' calculation from different sources
A dummy variable which equals one if a CEO owns more than 10% of the bank's shares and Authors' calculation from different sources
0 otherwise
Measure as the total length of the CEO tenure in years. Authors' calculation from different sources
Natural logarithm of the total number of directors on the board. Authors' calculation from different sources
Measure as the proportion of independent directors on board. Authors' calculation from different sources
Measure as the percentage of female director directors on board. Authors' calculation from different sources
Measure as the percentage of foreign directors on board. Authors' calculation from different sources
Natural logarithm of bank assets Bank scope
Equity over total assets Bank scope
Liquid assets divided by total assets Bank scope
Net loan to total assets Bank scope
Return on asset Bank scope
GDP per capita growth World Bank
Inflation based on the Consumer Price Index World Bank
Market shares of the three largest banks. Authors' calculation based on Bankscope and
GFDD*

Appendix B. Estimation of Lerner Index

The Lerner index is defined as the difference between output prices and marginal costs (relative to prices).10 The output price is defined as the ratio
of total revenue to total assets and is used as a proxy of an average bank's production. While the marginal cost is calculated through the translog cost
function with three input prices (labour, physical capital, and borrowed funds) and one output variable (total assets). We state the cost function as
follows:-
∑
3 3 ∑
∑ 3 ∑
3
lnCit = α0 + α1 lnQit + α3 (lnQit )2 + βj lnwjit + βj,k lnwjit lnwkit + γj lnwjit *lnQit + vt + εit (B.1)
j=1 j=1 k=1 j=1

In Eq. (B.1) Cit denotes total operating cost, Qit is output to total assets for bank i at time t. The w captures the three input prices, prices of labour
(w1), fixed assets (w2) and borrowed funds (w3). We follow Beck et al. (2013) and Berger et al. (2009) and estimate the individual cost functions for
every country over the sample period to mediate possible technological differences. We also incorporate the time dummies to absorb technological
progress, fluctuation in economic and business conditions, and bank specialization dummy. We impose linear homogeneity and symmetry constraints
in input prices. To derive the marginal cost (MC), eq. (B.1) estimates the coefficients of cost functions as follows:
( )
∂Ci,t Ci,t ∑2
wji,t
MCi,t = = α 1 + 2̂
̂ α 2 lnQi,t + γ̂j ln 3 (B.2)
∂Qi,t Qi,t j=1
wi,t

After determining the marginal cost and output prices, we estimate the Lerner index for each bank in the sample for each year as follows:
Pi,t + MCi,t
Lerneri,t = (B.3)
Pi,t

where Pi, t represent the ratio between total operating income to total assets, and MCi, t is derived from a translog cost function.

10
For more detail about the estimation of the Lerner Index, please visit https://datacatalog.worldbank.org/lerner-index#:~:text=A%20measure%20of%20market
%20power,costs%20(relative%20to%20prices).&text = Higher%20values%20of%20the%20Lerner%20index%20indicate%20less%20bank%20competition

21
M. Shabir et al. International Review of Financial Analysis 87 (2023) 102603

References Bloom, N. (2007). Uncertainty and the dynamics of R&D. American Economic Review, 97
(2), 250–255. https://doi.org/10.1257/aer.97.2.250
Bloom, N., Bond, S., & Van Reenen, J. (2007). Uncertainty and investment dynamics.
Abou-El-Sood, H. (2021). Board gender diversity, power, and bank risk taking.
Review of Economic Studies, 74(2), 391–415. https://doi.org/10.1111/j.1467-
International Review of Financial Analysis, 75, Article 101733. https://doi.org/
937X.2007.00426.x
10.1016/j.irfa.2021.101733
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic
Acharya, V. V., & Mora, N. (2015). A Crisis of Banks as Liquidity Providers. The Journal of
panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/
Finance, 70(1), 1–43. https://doi.org/10.1111/JOFI.12182
10.1016/S0304-4076(98)00009-8
Adams, R. B., Almeida, H., & Ferreira, D. (2005). Powerful CEOs and their impact on
Bongiovanni, A., Reghezza, A., Santamaria, R., & Williams, J. (2021). Do negative
corporate performance. In , Vol. 18. Review of Financial Studies (pp. 1403–1432).
interest rates affect bank risk-taking? Journal of Empirical Finance, 63, 350–364.
Oxford Academic. https://doi.org/10.1093/rfs/hhi030. Issue 4.
https://doi.org/10.1016/J.JEMPFIN.2021.07.008
Ahir, H., Bloom, N., & Furceri, D. (2018). The World uncertainty index. SSRN Electronic
Boone, A. L., Casares Field, L., Karpoff, J. M., & Raheja, C. G. (2007). The determinants of
Journal. https://doi.org/10.2139/ssrn.3275033
corporate board size and composition: An empirical analysis. Journal of Financial
Ahsan, T., & Qureshi, M. A. (2021). The nexus between policy uncertainty, sustainability
Economics, 85(1), 66–101. https://doi.org/10.1016/j.jfineco.2006.05.004
disclosure and firm performance. Applied Economics, 53(4), 441–453. https://doi.
Bordo, M. D., Duca, J. V., & Koch, C. (2016). Economic policy uncertainty and the credit
org/10.1080/00036846.2020.1808178
channel: Aggregate and bank level U.S. evidence over several decades. Journal of
Akbar, S., Kharabsheh, B., Poletti-Hughes, J., & Shah, S. Z. A. (2017). Board structure and
Financial Stability, 26, 90–106. https://doi.org/10.1016/j.jfs.2016.07.002
corporate risk taking in the UK financial sector. International Review of Financial
Boyd, J. H., & De Nicoló, G. (2005). The theory of bank risk taking and competition
Analysis, 50, 101–110. https://doi.org/10.1016/j.irfa.2017.02.001
revisited. Journal of Finance, 60(3), 1329–1343. https://doi.org/10.1111/j.1540-
Akhigbe, A., & Martin, A. D. (2006). Valuation impact of Sarbanes-Oxley: Evidence from
6261.2005.00763.x
disclosure and governance within the financial services industry. Journal of Banking
Bristy, H. J., Han, J., & Tian, G. G. (2022). CEO power and labor-friendly policy. Pacific-
and Finance, 30(3), 989–1006. https://doi.org/10.1016/j.jbankfin.2005.06.002
Basin Finance Journal, 71, Article 101699. https://doi.org/10.1016/J.
Albaity, M., Mallek, R. S., & Noman, A. H. M. (2019). Competition and bank stability in
PACFIN.2021.101699
the MENA region: The moderating effect of Islamic versus conventional banks.
Brogaard, J., & Detzel, A. (2015a). The asset-pricing implications of government
Emerging Markets Review, 38, 310–325.
economic policy uncertainty. Management Science, 61(1), 3–18. https://doi.org/
Al-Shboul, M., Maghyereh, A., Hassan, A., & Molyneux, P. (2020). Political risk and bank
10.1287/mnsc.2014.2044
stability in the Middle East and North Africa region. Pacific-Basin Finance Journal, 60,
Brogaard, J., & Detzel, A. (2015b). The asset-pricing implications of government
Article 101291. https://doi.org/10.1016/J.PACFIN.2020.101291
economic policy uncertainty. Management Science, 61(1), 3–18. https://doi.org/
Al-Thaqeb, S. A., & Algharabali, B. G. (2019). Economic policy uncertainty: A literature
10.1287/mnsc.2014.2044
review. Journal of Economic Asymmetries, 20, Article e00133. https://doi.org/
Brogi, M., & Lagasio, V. (2022). Better safe than sorry. Bank corporate governance, risk-
10.1016/j.jeca.2019.e00133
taking, and performance. Finance Research Letters, 44, Article 102039. https://doi.
Altunbaş, Y., Thornton, J., & Uymaz, Y. (2020). The effect of CEO power on bank risk: Do
org/10.1016/j.frl.2021.102039
boards and institutional investors matter?✰. Finance Research Letters, 33. https://doi.
Caldara, D., & Iacoviello, M. (2018). Measuring geopolitical risk. International Finance
org/10.1016/j.frl.2019.05.020
Discussion Paper, 2018(1222), 1–66. https://doi.org/10.17016/ifdp.2018.1222
de Andres, P., & Vallelado, E. (2008). Corporate governance in banking: The role of the
Chan, Y. C., Saffar, W., & Wei, K. C. J. (2021). How economic policy uncertainty affects
board of directors. Journal of Banking and Finance, 32(12), 2570–2580. https://doi.
the cost of raising equity capital: Evidence from seasoned equity offerings. Journal of
org/10.1016/j.jbankfin.2008.05.008
Financial Stability, 53, Article 100841. https://doi.org/10.1016/J.JFS.2020.100841
Anginer, D., Demirguc-Kunt, A., & Zhu, M. (2014). How does competition affect bank
Chao, C. C., Hu, M., Munir, Q., & Li, T. (2017). The impact of CEO power on corporate
systemic risk? Journal of Financial Intermediation, 23(1), 1–26. https://doi.org/
capital structure: New evidence from dynamic panel threshold analysis. International
10.1016/j.jfi.2013.11.001
Review of Economics and Finance, 51, 107–120. https://doi.org/10.1016/j.
Attila, J. G. (2022). Does bank deposits volatility react to political instability in
iref.2017.05.010
developing countries? Finance Research Letters, 49, Article 103126. https://doi.org/
Cheng, S. (2008). Board size and the variability of corporate performance. Journal of
10.1016/J.FRL.2022.103126
Financial Economics, 87(1), 157–176. https://doi.org/10.1016/j.jfineco.2006.10.006
Baker, S. R., & Bloom, N. (2013). Does uncertainty reduce growth? Using disasters as
Chi, Q., & Li, W. (2017). Economic policy uncertainty, credit risks and banks’ lending
natural experiments. In NBER Working Papers (pp. 1–31). https://www.nber.
decisions: Evidence from Chinese commercial banks. China Journal of Accounting
org/papers/w19475.
Research, 10(Issue 1), 33–50. Elsevier https://doi.org/10.1016/j.cjar.2016.12.001.
Baker, S. R., Bloom, N., & Davis, S. J. (2016a). Measuring economic policy uncertainty.
Chiu, J., Li, Y. H., & Kao, T. H. (2022). Does organization capital matter? An analysis of
Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/
the performance implications of CEO power. North American Journal of Economics
qjw024
and Finance, 59, Article 101382. https://doi.org/10.1016/j.najef.2021.101382
Baker, S. R., Bloom, N., & Davis, S. J. (2016b). Measuring economic policy uncertainty.
Çolak, G., Durnev, A., & Qian, Y. (2017). Political uncertainty and IPO activity: Evidence
Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/
from U.S. gubernatorial elections. Journal of Financial and Quantitative Analysis, 52
qjw024
(6), 2523–2564. https://doi.org/10.1017/S0022109017000862
Banna, H., Kabir Hassan, M., & Rashid, M. (2021). Fintech-based financial inclusion and
Çolak, M. S., & Şenol, A. (2021). Bank ownership and lending dynamics: Evidence from
bank risk-taking: Evidence from OIC countries. Journal of International Financial
Turkish banking sector. International Review of Economics and Finance, 72, 583–605.
Markets Institutions and Money, 75, Article 101447. https://doi.org/10.1016/j.
https://doi.org/10.1016/j.iref.2020.11.014
intfin.2021.101447
Danisman, G. O., & Demirel, P. (2019). Bank risk-taking in developed countries: The
Barry, T. A., Lepetit, L., & Tarazi, A. (2011). Ownership structure and risk in publicly
influence of market power and bank regulations. Journal of International Financial
held and privately owned banks. Journal of Banking and Finance, 35(5), 1327–1340.
Markets Institutions and Money, 59, 202–217. https://doi.org/10.1016/j.
https://doi.org/10.1016/j.jbankfin.2010.10.004
intfin.2018.12.007
Beck, T., De Jonghe, O., & Schepens, G. (2013). Bank competition and stability: Cross-
Dell’Ariccia, G., Laeven, L., & Marquez, R. (2014). Real interest rates, leverage, and bank
country heterogeneity. Journal of Financial Intermediation, 22(2), 218–244. https://
risk-taking. Journal of Economic Theory, 149(1), 65–99. https://doi.org/10.1016/j.
doi.org/10.1016/J.JFI.2012.07.001
jet.2013.06.002
Berger, A. N., Klapper, L. F., & Turk-Ariss, R. (2009). Bank competition and financial
Demir, E., & Danisman, G. O. (2021). The impact of economic uncertainty and
stability. Journal of Financial Services Research, 35(2), 99–118. https://doi.org/
geopolitical risks on bank credit. North American Journal of Economics and Finance,
10.1007/s10693-008-0050-7
57, Article 101444. https://doi.org/10.1016/j.najef.2021.101444
Bermpei, T., Kalyvas, A., & Nguyen, T. C. (2018). Does institutional quality condition the
Demir, E., & Ersan, O. (2017). Economic policy uncertainty and cash holdings: Evidence
effect of bank regulations and supervision on bank stability? Evidence from
from BRIC countries. Emerging Markets Review, 33, 189–200. https://doi.org/
emerging and developing economies. International Review of Financial Analysis, 59,
10.1016/j.ememar.2017.08.001
255–275. https://doi.org/10.1016/j.irfa.2018.06.002
Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity.
Bernanke, B. S. (1983). Irreversibility, uncertainty, and cyclical investment. Quarterly
Journal of Political Economy, 91(3), 401–419. https://doi.org/10.1086/261155
Journal of Economics, 98(1), 85–106. https://doi.org/10.2307/1885568
Dixit, A. K., & Pindyck, R. S. (2012). Investment under uncertainty. In Investment under
Bhatia, M., & Gulati, R. (2021). Board governance and bank performance: A meta-
Uncertainty. Princeton University Press. https://doi.org/10.2307/2329279.
analysis. In Research in International Business and Finance, 58. https://doi.org/
Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO
10.1016/j.ribaf.2021.101425
governance and shareholder returns. Australian Journal of Management, 16(1),
Bhattacharyya, A., Lovell, C. A. K., & Sahay, P. (1997). The impact of liberalization on
49–64. https://doi.org/10.1177/031289629101600103
the productive efficiency of Indian commercial banks. European Journal of
Dong, Y., Meng, C., Firth, M., & Hou, W. (2014). Ownership structure and risk-taking:
Operational Research, 98(2), 332–345. https://doi.org/10.1016/S0377-2217(96)
Comparative evidence from private and state-controlled banks in China. International
00351-7
Review of Financial Analysis, 36, 120–130. https://doi.org/10.1016/j.
Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and
irfa.2014.03.009
yields: The role of institutional investors and outside directors. Journal of Business, 76
Drakos, A. A., Kouretas, G. P., & Tsoumas, C. (2016). Ownership, interest rates and bank
(3), 455–475. https://doi.org/10.1086/344114
risk-taking in Central and Eastern European countries. International Review of
Bilgin, M. H., Danisman, G. O., Demir, E., & Tarazi, A. (2021). Economic uncertainty and
Financial Analysis, 45, 308–319. https://doi.org/10.1016/j.irfa.2014.08.004
bank stability: Conventional vs. Islamic banking. Journal of Financial Stability, 56,
Fang, H., Lee, J. S., Chung, C. P., Lee, Y. H., & Wang, W. H. (2020). Effect of CEO power
Article 100911. https://doi.org/10.1016/j.jfs.2021.100911
and board strength on bank performance in China. Journal of Asian Economics, 69.
Biswas, S., & Kumar, R. (2022). Bank board network and financial stability in emerging
https://doi.org/10.1016/j.asieco.2020.101215
markets. Emerging Markets Review, 100884. https://doi.org/10.1016/j.
ememar.2022.100884

22
M. Shabir et al.
Farooq, O., & Ahmed, N. (2019). Dividend policy and political uncertainty: Evidence
from the US presidential elections. Research in International Business and Finance, 48,
201–209. https://doi.org/10.1016/j.ribaf.2019.01.003
Fernandes, C., Farinha, J., Martins, F. V., & Mateus, C. (2021). The impact of board
characteristics and CEO power on banks’ risk-taking: stable versus crisis periods.
Journal of Banking Regulation, 22(4), 319–341. https://doi.org/10.1057/s41261-
021-00146-4
Finkelstein, S. (1992). Power in top management teams: dimensions, measurement, and
validation. Academy of Management Journal, 35(3), 505–538. https://doi.org/
10.5465/256485
Finkelstein, S., & D’aveni, R. A. (1994). CEO duality as a double-edged sword: How
boards of directors balance entrenchment avoidance and unity of command.
Academy of Management Journal, 37(5), 1079–1108. https://doi.org/10.5465/
256667
Fu, X., Lin, Y., & Molyneux, P. (2014). Bank competition and financial stability in Asia
Pacific. Journal of Banking and Finance, 38(1), 64–77. https://doi.org/10.1016/j.
jbankfin.2013.09.012
Gholipour, H. F. (2019). The effects of economic policy and political uncertainties on
economic activities. Research in International Business and Finance, 48, 210–218.
https://doi.org/10.1016/j.ribaf.2019.01.004
Goetz, M. R. (2018). Competition and bank stability. Journal of Financial Intermediation,
35, 57–69. https://doi.org/10.1016/j.jfi.2017.06.001
González, L. O., Razia, A., Búa, M. V., & Sestayo, R. L. (2017). Competition,
concentration and risk taking in Banking sector of MENA countries. Research in
International Business and Finance, 42, 591–604. https://doi.org/10.1016/j.
ribaf.2017.07.004
Goodell, J. W., Goyal, A., & Urquhart, A. (2021). Uncertainty of uncertainty and firm
cash holdings. Journal of Financial Stability, 56, Article 100922. https://doi.org/
10.1016/j.jfs.2021.100922
Gorton, G. (1988). Banking panics and business cycles. Oxford Economic Papers, 40(4),
751–781. https://doi.org/10.1093/oxfordjournals.oep.a041885
Gulen, H., & Ion, M. (2016). Policy uncertainty and corporate investment. Review of
Financial Studies, 29(Issue 3), 523–564. Oxford Academic https://doi.org/10.1093/r
fs/hhv050.
Gupta, N., & Mahakud, J. (2020). CEO characteristics and bank performance: Evidence
from India. Managerial Auditing Journal, 35(8), 1057–1093. https://doi.org/
10.1108/MAJ-03-2019-2224
Han, R., & Melecky, M. (2013). Financial inclusion for financial stability access to bank
deposits and the growth of deposits in the Global Financial Crisis. World Development
Report, 6577, 2–24. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2312982.
He, Z., & Niu, J. (2017). The effect of economic policy uncertainty on bank valuations.
Doi:10.1080/13504851.2017.1321832, 25(5), 345–347. https://doi.org/10.1080/
13504851.2017.1321832
Hellmann, T. F., Murdock, K. C., & Stiglitz, J. E. (2000). Liberalization, moral hazard in
banking, and prudential regulation: Are capital requirements enough? American
Economic Review, 90(1), 147–165. https://doi.org/10.1257/aer.90.1.147
Hermalin, B. E., & Weisbach, M. S. (1998). Endogenously chosen boards of directors and
their monitoring of the CEO. American Economic Review, 88(1), 96–118. https://doi.
org/10.2307/116820
Hillman, A. J., Keim, G. D., & Luce, R. A. (2016). Board composition and stakeholder
performance: Do stakeholder directors make a difference? Doi:10.1177/
000765030104000304, 40(3), 295–314. https://doi.org/10.1177/
000765030104000304
Houston, J. F., Lin, C., Lin, P., & Ma, Y. (2010). Creditor rights, information sharing, and
bank risk taking. Journal of Financial Economics, 96(3), 485–512. https://doi.org/
10.1016/j.jfineco.2010.02.008
Huang, R., & Ratnovski, L. (2011). The dark side of bank wholesale funding. Journal of
Financial Intermediation, 20(2), 248–263. https://doi.org/10.1016/J.
JFI.2010.06.003
Isik, I., & Hassan, M. K. (2002). Cost and profit efficiency of the turkish banking industry:
An empirical investigation. Financial Review, 37(2), 257–279. https://doi.org/
10.1111/1540-6288.00014
Ivashina, V., & Scharfstein, D. (2010). Bank lending during the financial crisis of 2008.
Journal of Financial Economics, 97(3), 319–338. https://doi.org/10.1016/J.
JFINECO.2009.12.001
Jahn, N., & Kick, T. (2012). Determinants of banking system stability: A macro-
prudential analysis. In Banks - How big is big enough? (pp. 1–35). https://www.resear
chgate.net/profile/Faris-Alshubiri/post/What-are-the-keys-factors-that-contribute-t
o-the-stability-of-the-banking-system/attachment/59d6292a79197b8077987a69/A
S%3A334098120888320%401456666607063/download/3000.pdf.
Jens, C. E. (2017). Political uncertainty and investment: Causal evidence from U.S.
gubernatorial elections. Journal of Financial Economics, 124(3), 563–579. https://doi.
org/10.1016/j.jfineco.2016.01.034
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal
control systems. The Journal of Finance, 48(3), 831–880. https://doi.org/10.1111/
j.1540-6261.1993.tb04022.x
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior,
agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
https://doi.org/10.1016/0304-405X(76)90026-X
Jia, C. (2009). The effect of ownership on the prudential behavior of banks - The case of
China. Journal of Banking and Finance, 33(1), 77–87. https://doi.org/10.1016/j.
jbankfin.2007.03.017
Jory, S. R., Khieu, H. D., Ngo, T. N., & Phan, H. V. (2020). The influence of economic
policy uncertainty on corporate trade credit and firm value. Journal of Corporate
Finance, 64, Article 101671. https://doi.org/10.1016/j.jcorpfin.2020.101671
23
International Review of Financial Analysis 87 (2023) 102603
Julio, B., & Yook, Y. (2012). Political uncertainty and corporate investment cycles.
Journal of Finance, 67(1), 45–83. https://doi.org/10.1111/J.1540-6261.2011.01707.
X
Karadima, M., & Louri, H. (2021). Economic policy uncertainty and non-performing
loans: The moderating role of bank concentration. Finance Research Letters, 38,
Article 101458. https://doi.org/10.1016/j.frl.2020.101458
Kaviani, M. S., Kryzanowski, L., Maleki, H., & Savor, P. (2020). Policy uncertainty and
corporate credit spreads. Journal of Financial Economics, 138(3), 838–865. https://
doi.org/10.1016/j.jfineco.2020.07.001
Keeley, M. C. (1990). Deposit insurance, risk, and market power in banking. American
Economic Review, 80(5), 1183–1200. https://www.jstor.org/stable/2006769#met
adata_info_tab_contents.
Khan, H. H., Ahmed, R. B., & Gee, C. S. (2016). Bank competition and monetary policy
transmission through the bank lending channel: Evidence from ASEAN. International
Review of Economics and Finance, 44, 19–39.
Khoo, J., & Cheung, A. W. K. (2021). Does geopolitical uncertainty affect corporate
financing? Evidence from MIDAS regression. Global Finance Journal, 47, Article
100519. https://doi.org/10.1016/j.gfj.2020.100519
Killins, R. N., Johnk, D. W., & Egly, P. V. (2020). The impact of financial regulation
policy uncertainty on bank profits and risk. Studies in Economics and Finance, 37(4),
725–752. https://doi.org/10.1108/SEF-05-2019-0169/FULL/PDF
Kim, J. (2018). Bank competition and financial stability: Liquidity risk perspective.
Contemporary Economic Policy, 36(2), 337–362. https://doi.org/10.1111/
coep.12243
Klein, P., Maidl, C., & Woyand, C. (2021). Bank ownership and capital buffers: How
internal control is affected by external governance. Journal of Financial Stability, 54.
https://doi.org/10.1016/j.jfs.2021.100857
Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk taking. Journal of
Financial Economics, 93(2), 259–275. https://doi.org/10.1016/j.jfineco.2008.09.003
Lassoued, N., Sassi, H., Attia, B. R., & M.. (2016). The impact of state and foreign
ownership on banking risk: Evidence from the MENA countries. Research in
International Business and Finance, 36, 167–178. https://doi.org/10.1016/j.
ribaf.2015.09.014
Le, T. N. L., Nasir, M. A., & Huynh, T. L. D. (2020). Capital requirements and banks
performance under Basel-III: A comparative analysis of Australian and British banks.
The Quarterly Review of Economics and Finance. https://doi.org/10.1016/j.
qref.2020.06.001
Lee, C. C., & Lee, C. C. (2020). Insurance activity, real output, and geopolitical risk: Fresh
evidence from BRICS. Economic Modelling, 92, 207–215. https://doi.org/10.1016/j.
econmod.2020.01.001
Lee, C. C., Lee, C. C., & Li, Y. Y. (2021). Oil price shocks, geopolitical risks, and green
bond market dynamics. North American Journal of Economics and Finance, 55, Article
101309. https://doi.org/10.1016/j.najef.2020.101309
Leroy, A. (2019). Banking competition, financial dependence and productivity growth in
Europe. International Economics, 159, 1–17. https://doi.org/10.1016/j.
inteco.2016.01.001
Leroy, A., & Lucotte, Y. (2017). Is there a competition-stability trade-off in European
banking? Journal of International Financial Markets Institutions and Money, 46,
199–215. https://doi.org/10.1016/j.intfin.2016.08.009
Li, T., Munir, Q., & Abd Karim, M. R. (2017). Nonlinear relationship between CEO power
and capital structure: Evidence from China’s listed SMEs. International Review of
Economics and Finance, 47, 1–21. https://doi.org/10.1016/j.iref.2016.09.005
Liu, J., & Wang, H. (2022). Economic policy uncertainty and the cost of capital.
International Review of Financial Analysis, 102070. https://doi.org/10.1016/j.
irfa.2022.102070
Liu, Y., Han, L., & Xu, Y. (2021). The impact of geopolitical uncertainty on energy
volatility. International Review of Financial Analysis, 75. https://doi.org/10.1016/j.
irfa.2021.101743
Louhichi, A., Louati, S., & Boujelbene, Y. (2020). The regulations–risk taking nexus under
competitive pressure: What about the Islamic banking system? Research in
International Business and Finance, 51. https://doi.org/10.1016/j.ribaf.2019.101074
Marcus, A. J. (1984). Deregulation and bank financial policy. Journal of Banking and
Finance, 8(4), 557–565. https://doi.org/10.1016/S0378-4266(84)80046-1
Mateev, M., & Bachvarov, P. (2021). Regulation, ownership and bank performance in the
MENA region: Evidence for Islamic and conventional banks. Emerging Markets
Review, 47. https://doi.org/10.1016/j.ememar.2020.100789
May, D. O. (1995). Do managerial motives influence firm risk reduction strategies? The
Journal of Finance, 50(4), 1291–1308. https://doi.org/10.1111/J.1540-6261.1995.
TB04059.X
Meslier, C., Risfandy, T., & Tarazi, A. (2020). Islamic banks’ equity financing, Shariah
supervisory board, and banking environments. Pacific-Basin Finance Journal, 62,
Article 101354. https://doi.org/10.1016/j.pacfin.2020.101354
Nagel, S. (2012). Evaporating liquidity. Review of Financial Studies, 25(Issue 7),
2005–2039. Oxford Academic https://doi.org/10.1093/rfs/hhs066.
Ng, J., Saffar, W., & Zhang, J. J. (2020). Policy uncertainty and loan loss provisions in the
banking industry. Review of Accounting Studies, 25(2), 726–777. https://doi.org/
10.1007/S11142-019-09530-Y
Nguyen, J., Parsons, R., & Argyle, B. (2021). An examination of diversification on bank
profitability and insolvency risk in 28 financially liberalized markets. Journal of
Behavioral and Experimental Finance, 29. https://doi.org/10.1016/j.
jbef.2020.100416
Nguyen, T. A. N. (2022). The role of institutional quality in bank deposit growth In
European transition economies. Finance Research Letters, 47, Article 102630. https://
doi.org/10.1016/J.FRL.2021.102630
Nguyen, T. C. (2021). Economic policy uncertainty and bank stability: Does bank
regulation and supervision matter in major European economies? Journal of
M. Shabir et al.
International Financial Markets. Institutions and Money, 74, Article 101387. https://
doi.org/10.1016/j.intfin.2021.101387
Noman, A. H. M., Hassan, M. K., Pervin, S., Isa, C. R., & Sok-gee, C. (2022). The
mediating role of competition on deposit insurance and the risk-taking of banks in
ASEAN countries. Research in International Business and Finance, 59, Article 101551.
https://doi.org/10.1016/j.ribaf.2021.101551
Ozili, P. K. (2021). Economic policy uncertainty in banking: A literature review. SSRN
Electronic Journal. https://doi.org/10.2139/ssrn.3851426
Panousi, V., & Papanikolaou, D. (2012). Investment, idiosyncratic risk, and ownership.
The Journal of Finance, 67(3), 1113–1148. https://doi.org/10.1111/J.1540-
6261.2012.01743.X
Pástor, Ľ., & Veronesi, P. (2013a). Political uncertainty and risk premia. Journal of
Financial Economics, 110(3), 520–545. https://doi.org/10.1016/J.
JFINECO.2013.08.007
Pástor, Ľ., & Veronesi, P. (2013b). Political uncertainty and risk premia. Journal of
Financial Economics, 110(3), 520–545. https://doi.org/10.1016/J.
JFINECO.2013.08.007
Pathan, S. (2009). Strong boards, CEO power and bank risk-taking. Journal of Banking
and Finance, 33(7), 1340–1350. https://doi.org/10.1016/j.jbankfin.2009.02.001
Phan, D. H. B., Iyke, B. N., Sharma, S. S., & Affandi, Y. (2021). Economic policy
uncertainty and financial stability–Is there a relation? Economic Modelling, 94,
1018–1029. https://doi.org/10.1016/j.econmod.2020.02.042
Phan, D. H. B., Tran, V. T., & Iyke, B. N. (2021). Geopolitical risk and bank stability.
Finance Research Letters, 102453. https://doi.org/10.1016/j.frl.2021.102453
Pindyck, S. R. (1988). Irreversible investment, capacity choice, and the value of the firm.
American Economic Review, 78(5), 969–985. https://ideas.repec.org/a/aea/aecrev/
v78y1988i5p969-85.html.
Ritz, R. A., & Walther, A. (2015). How do banks respond to increased funding
uncertainty? Journal of Financial Intermediation, 24(3), 386–410. https://doi.org/
10.1016/J.JFI.2014.12.001
Sahul Hamid, F. (2020). Bank lending and the business cycle: Does ownership matter in
ASEAN countries? Journal of Asian Economics, 66. https://doi.org/10.1016/j.
asieco.2019.101153
Salisu, A. A., Cuñado, J., & Gupta, R. (2022). Geopolitical risks and historical exchange
rate volatility of the BRICS. International Review of Economics and Finance, 77,
179–190. https://doi.org/10.1016/j.iref.2021.09.017
Sha, Y., Kang, C., & Wang, Z. (2020). Economic policy uncertainty and mergers and
acquisitions: Evidence from China. Economic Modelling, 89, 590–600. https://doi.
org/10.1016/j.econmod.2020.03.029
Shabir, M., Jiang, P., Bakhsh, S., & Zhao, Z. (2021). Economic policy uncertainty and
bank stability: Threshold effect of institutional quality and competition. Pacific-Basin
Finance Journal, 68, Article 101610. https://doi.org/10.1016/j.pacfin.2021.101610
Shah, S. Z. A., Akbar, S., Liu, J., Liu, Z., & Cao, S. (2017). CEO compensation and banks’
risk-taking during pre and post financial crisis periods. Research in International
Business and Finance, 42, 1489–1503. https://doi.org/10.1016/j.ribaf.2017.07.089
Shahab, Y., Gull, A. A., Ahsan, T., & Mushtaq, R. (2022). CEO power and corporate social
responsibility decoupling. Applied Economics Letters, 29(21), 1965–1969.
Shahab, Y., Ntim, C. G., Ullah, F., Yugang, C., & Ye, Z. (2020). CEO power and stock price
crash risk in China: Do female directors’ critical mass and ownership structure
matter? International Review of Financial Analysis, 68, Article 101457.
Sheikh, S. (2018a). The impact of market competition on the relation between CEO
power and firm innovation. Journal of Multinational Financial Management, 44,
36–50. https://doi.org/10.1016/j.mulfin.2018.01.003
Sheikh, S. (2018b). CEO power, product market competition and firm value. Research in
International Business and Finance, 46, 373–386. https://doi.org/10.1016/J.
RIBAF.2018.04.009
Shen, H., Liang, Y., Li, H., Liu, J., & Lu, G. (2021). Does geopolitical risk promote mergers
and acquisitions of listed companies in energy and electric power industries. Energy
Economics, 95, Article 105115. https://doi.org/10.1016/j.eneco.2021.105115
Shen, H., Zheng, S., Xiong, H., Tang, W., Dou, J., & Silverman, H. (2021). Stock market
mispricing and firm innovation based on path analysis. Economic Modelling, 95,
330–343. https://doi.org/10.1016/J.ECONMOD.2020.03.001
Shen, Y. (2021). CEO characteristics: a review of influential publications and a research
agenda. Accounting and Finance, 61(1), 361–385. https://doi.org/10.1111/
ACFI.12571
Shi, Q., Qiu, W., & Fan, Y. (2020). Economic policy uncertainty and the distribution of
business operations between parent companies and their subsidiaries. Emerging
Markets Finance and Trade, 56(2), 427–456. https://doi.org/10.1080/
1540496X.2019.1700363
Shin, H. S. (2009). Reflections on northern rock: The bank run that heralded the global
financial crisis. Journal of Economic Perspectives, 23(Issue 1), 101–119. American
Economic Association https://doi.org/10.1257/jep.23.1.101.
Shleifer, A., & Vishny, R. W. (2010). Unstable banking. Journal of Financial Economics, 97
(3), 306–318. https://doi.org/10.1016/J.JFINECO.2009.10.007
Solanko, L., & Fungacova, Z. (2011). Risk-taking by russian banks: do location,
ownership and size matter? SSRN Electronic Journal. https://doi.org/10.2139/
ssrn.1313019
Streit, D., Lange, M., & Paul, S. (2018). Determinants of bank-level deposit volatility:
Evidence from the german banking system. SSRN Electronic Journal. https://doi.org/
10.2139/ssrn.2862034
24
International Review of Financial Analysis 87 (2023) 102603
Switzer, L. N., Tu, Q., & Wang, J. (2018). Corporate governance and default risk in
financial firms over the post-financial crisis period: International evidence. Journal of
International Financial Markets Institutions and Money, 52, 196–210. https://doi.org/
10.1016/j.intfin.2017.09.023
Switzer, L. N., & Wang, J. (2013). Default risk estimation, bank credit risk, and corporate
governance. Financial Markets, Institutions & Instruments, 22(2), 91–112. https://doi.
org/10.1111/fmii.12005
Tabak, B. M., Fazio, D. M., & Cajueiro, D. O. (2012). The relationship between banking
market competition and risk-taking: Do size and capitalization matter? Journal of
Banking & Finance, 36(12), 3366–3381. https://doi.org/10.1016/J.
JBANKFIN.2012.07.022
Tabash, M. I., Farooq, U., Ashfaq, K., & Tiwari, A. K. (2022). Economic policy uncertainty
and financing structure: A new panel data evidence from selected Asian economies.
Research in International Business and Finance, 60, Article 101574. https://doi.org/
10.1016/j.ribaf.2021.101574
Ting, H. I., Chueh, H., & Chang, P. R. (2017). CEO power and its effect on performance
and governance: Evidence from Chinese banks. Emerging Markets Review, 33, 42–61.
https://doi.org/10.1016/j.ememar.2017.09.005
Tran, D. V., & Houston, R. (2021). The effects of policy uncertainty on bank loan loss
provisions. Economic Modelling, 102. https://doi.org/10.1016/j.
econmod.2021.105575
Vazquez, F., & Federico, P. (2015). Bank funding structures and risk: Evidence from the
global financial crisis. Journal of Banking and Finance, 61, 1–14. https://doi.org/
10.1016/j.jbankfin.2015.08.02
Waisman, M., Ye, P., & Zhu, Y. (2015). The effect of political uncertainty on the cost of
corporate debt. Journal of Financial Stability, 16, 106–117. https://doi.org/10.1016/
J.JFS.2015.01.002
Wang, C. J. (2012). Board size and firm risk-taking. Review of Quantitative Finance and
Accounting, 38(4), 519–542. https://doi.org/10.1007/s11156-011-0241-4
Wang, C.-W., Lee, C.-C., & Chen, M.-C. (2022). The effects of economic policy uncertainty
and country governance on banks’ liquidity creation: International evidence. Pacific-
Basin Finance Journal, 71, Article 101708. https://doi.org/10.1016/j.
pacfin.2022.101708
Wang, Y., Wei, Y., & Song, F. M. (2017). Uncertainty and corporate R&D investment:
Evidence from Chinese listed firms. International Review of Economics and Finance, 47,
176–200. https://doi.org/10.1016/j.iref.2016.10.004
Wu, J., Li, H., Zheng, D., & Liu, X. (2021a). Economic uncertainty or financial
uncertainty? An empirical analysis of bank risk-taking in Asian emerging markets.
Finance Research Letters, 39. https://doi.org/10.1016/j.frl.2020.101542
Wu, J., Li, H., Zheng, D., & Liu, X. (2021b). Economic uncertainty or financial
uncertainty? An empirical analysis of bank risk-taking in Asian emerging markets.
Finance Research Letters, 39, Article 101542. https://doi.org/10.1016/J.
FRL.2020.101542
Wu, J., Yan, Y., Chen, M., & Jeon, B. N. (2022). Monetary policy, economic uncertainty
and bank risk: Cross-country evidence. Journal of International Money and Finance,
122, Article 102580. https://doi.org/10.1016/J.JIMONFIN.2021.102580
Wu, J., Yao, Y., Chen, M., & Jeon, B. N. (2020a). Economic uncertainty and bank risk:
Evidence from emerging economies. Journal of International Financial Markets
Institutions and Money, 68, Article 101242. https://doi.org/10.1016/j.
intfin.2020.101242
Wu, J., Yao, Y., Chen, M., & Jeon, B. N. (2020b). Economic uncertainty and bank risk:
Evidence from emerging economies. Journal of International Financial Markets
Institutions and Money, 68, Article 101242. https://doi.org/10.1016/J.
INTFIN.2020.101242
Wu, J., Yao, Y., Chen, M., & Jeon, B. N. (2021). Does economic uncertainty affect the
soundness of banks? Evidence from emerging Asian economies. Journal of Asian
Economics, 77, Article 101394. https://doi.org/10.1016/j.asieco.2021.101394
Xu, N., Chen, Q., Xu, Y., & Chan, K. C. (2016). Political uncertainty and cash holdings:
Evidence from China. Journal of Corporate Finance, 40, 276–295. https://doi.org/
10.1016/j.jcorpfin.2016.08.007
Zhang, G., Han, J., Pan, Z., & Huang, H. (2015). Economic policy uncertainty and capital
structure choice: Evidence from China. Economic Systems, 39(3), 439–457. https://
doi.org/10.1016/J.ECOSYS.2015.06.003
Zhang, X., Li, F., & Ortiz, J. (2021). Internal risk governance and external capital
regulation affecting bank risk-taking and performance: Evidence from P.R. China.
International Review of Economics and Finance, 74, 276–292. https://doi.org/
10.1016/J.IREF.2021.03.008
Zhang, X., Li, F., Xu, Y., & Ortiz, J. (2021). Economic uncertainty and bank risk: the
moderating role of risk governance. Economic Research-Ekonomska Istraživanja, 1–19.
https://doi.org/10.1080/1331677x.2021.1985568
Zheng, C., Moudud-Ul-Huq, S., Rahman, M. M., & Ashraf, B. N. (2017). Does the
ownership structure matter for banks’ capital regulation and risk-taking behavior?
Empirical evidence from a developing country. Research in International Business and
Finance, 42, 404–421. https://doi.org/10.1016/j.ribaf.2017.07.035
Zhou, L., Gozgor, G., Huang, M., & Keung Lau, M. C. (2020). The impact of geopolitical
risks on financial development: Evidence from emerging markets. Journal of
Competitiveness, 12(1), 93–107. https://doi.org/10.7441/joc.2020.01.06