Abstract
The United Nations Sustainable Development Goal 7 emphasizes the need for economies around the world to double their efforts in energy efficiency improvements. This is because improvements in energy efficiency can trigger economic growth and considered as one of the ‘green’ growth strategies due to its carbon free content. To this end, some empirical studies have investigated the nexus between economic growth and energy efficiency, but the effects of the latter on financial indicators have not been sufficiently studied in the literature, at least in developing economies like Africa. This study examines the effect of energy efficiency improvements on commercial bank profitability under different political regimes (i.e., autocratic and democratic political regimes); something previous literature had neglected. The study uses panel data, consisting of 43 African countries and the simultaneous System Generalized Method of Moments. We found that energy efficiency improvement is more likely to induce higher bank profitability in political institutions with the characteristics of centralization of power compared with those with decentralization of power. Furthermore, for the banking sector, the findings suggest that energy utilization behavior of clients should be included in the loan or credit valuation process. For the government, the agenda of energy efficiency should be aggressively pursued while taking cognizance of creating a political environment that weans itself from a ‘grandfathering’ behavior.
Highlights
The aim of this study is to examine the effect of energy intensity on commercial bank profitability under different political institutional regimes in Africa
It differs in the inclusion of an indicator for energy efficiency, which is motivated by studies, such as Adom et al (2019a, b), Fan et al (2017), Kaufmann et al (2011), Carr and Beese (2008), and Subrahmanya 2006a Banking performance (BP) is expressed as a function of the lag in bank performance, bank size (SIZE), credit growth (CreditGrowth), risk (RISK), managerial inefficiency (MIE), financial fragility (FG), energy efficiency indicator (EE), and other controls (X) in Eq 1, where η represents unobserved country-specific effects, and t is the time effect
Conclusions and policy recommendations The growth of the financial sector is critical to economic growth
Summary
The aim of this study is to examine the effect of energy intensity (an indicator of energy efficiency) on commercial bank profitability under different political institutional regimes in Africa. For many of the financial indicators, such as financial depth, financial intermediation, degree of financial penetration, and non-performing loans (NPLs), the performance of SSA has been the lowest in the world (Muñoz et al 2012).. For many of the financial indicators, such as financial depth, financial intermediation, degree of financial penetration, and non-performing loans (NPLs), the performance of SSA has been the lowest in the world (Muñoz et al 2012).1 These factors make the financial sector (especially the banking sector) in Africa, shallow compared with other regions. Given that development of the financial sector contributes significantly to economic growth, a study that investigates the causal factors of financial development is very critical, more importantly, when considering the important role of energy efficiency improvements, which have significant implications on loan underwriting rules as well as individuals’ decisions to invest in energy efficiency projects (Adom et al 2019a, b)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
