Banks' profitability, institutions, and regulation in the context of the financial crisis

Abstract This paper empirically examines how banks' dividend policy, the institutional environment, and banking regulation affects banks' profitability using panel data of a sample of 567 banks, mainly from Organisation for Economic Cooperation and Development countries, for 2004–2015. It further examines whether the effect of the institutional environment and banking regulation varies for crisis and noncrisis years. The estimation results reveal that banks' dividend policy influences positively banks' profitability, whereas higher levels of the institutional environment or stricter banking regulation reduces banks' profitability. The negative effect of the institutional environment and banking regulation was of lower magnitude during the global financial crisis, followed by the Eurozone crisis, and for less‐developed countries and larger banks.