Governance perspective and the effect of economic policy uncertainty on financial stability: evidence from developed and developing economies

Economic Policy Uncertainty (EPU) research has grown in importance today's highly volatile and interconnected economy. This work investigates the relationship between EPU Financial Stability (FS) (i.e., Z-scores non-performing loans (NPL)) with mediating variable of governance quality through a 23-country panel data from 2005 to 2019. The System Generalized Method Moment (SYS-GMM) is adopted address issue endogeneity, which common regression. two-stage Sequential Linear Panel Data Model (SELPDM) was also used test robustness results. According findings, significant negative effect on financial stability (measured by Z-score) positive banking industry most developed economies (proxied NPL). We discovered that good can be mitigate effects stability; however, this influence varies depending region, bank, market structure, it significantly greater during global crisis. Finally, study help managers policymakers develop appropriate policies understand how banks respond EPU.