Abstract:
After the socio-economic revolution and the establishment of the free market institutions, the
development and improvement of living standards in post-transition economies are deemed to depend
more and more on the so called secondary ‘generating’ reforms, at the core of which is the good
governance. Drawing from this approach, this study seeks to address the role and the effect of the good
governance in the banking sector development of the Asian countries. The main objective of this study
is to evaluate the impact of good governance on banking sector development in Asian countries using a
panel of 23 countries from 2008-2015. It utilizes the system Generalized Method of Moments (GMM)
dynamic panel model estimator. The researcher creates a new governance indicator (NGVI) that
summarizes the existing six governance measurements in the Worldwide Governance Indicators (WGI),
using the Principal Components Analysis (PCA) method. Proxies for banking access by commercial
bank branches per 100,000 adults (BB), size by deposit money bank assets to GDP (DBGDP), stability
by concentration ratio (CR) and efficiency by bank returns on assets (BROA) measure the banking
sector development. Results indicate that governance indicators strongly influence to the development
of banking stability. Finally, study found that good governance is very important to increase top 3
banks’ market share in the Asian region. Since, the relevant authorities should take the decision to
enhance the institutional quality promoting good governance to further improve the banking sector
towards the overall growth of the financial sector in the region.
