Political power, economic freedom and performance in the Tunisian banking sector

literature and empirical validations

Abstract

Over the past decades, the banking sector has undergone tremendous transformation, and its performance is subject to increasingly important factors. Among these factors, political power and economic freedom which are the subject of our paper. This paper presents a theoretical examination of the fundamentals and the intervention mechanisms of political power. Then a presentation of the different perceptive of economic freedom and the different dimensions of banking performance. Finally, an empirical study is settle down for the Tunisian banking sector, first by a descriptive study then an econometric study. An econometric analysis using panel data by the Generalised Least Squares  (GLS) method was carried out,   on a sample that covers 6 Tunisian commercial banks, three state owned banks and three private banks that account for 70% (= 68.8%) of  the outstanding deposits. The banks studied are banks listed on the Tunisian Stock Exchange (BVMT). Our sample therefore includes the main commercial banks in Tunisia during the period 2008-2018. The dependent variable retained in our model is the return on assets “ROA”. This variable presents the banks performance in our paper  and we will be testing the effect of both political power and economic freedom on it. We empirically confirm the existence of an important relationship between political power and the performance of Tunisian banks. Indeed, banking performance improves by the decrease of political power existance d in the sector. On the other hand, we empirically demonstrated that economic freedom has no significant effect on banking performance in Tunisia. But, it remains important to point out the existence of a strong significance between banking performance and other variables of the chosen econometric model hence the need for further academic work.