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Regulation, competition and profitability: a tri-method analysis of Swedish banks
Mid-Sweden University, Sweden.ORCID iD: 0009-0009-2071-8339
Mid-Sweden University, Sweden.ORCID iD: 0000-0001-6379-6120
Södertörn University, School of Social Sciences, Business Studies.
2025 (English)In: Journal of Financial Regulation and Compliance, ISSN 1358-1988, E-ISSN 1740-0279, p. 1-26Article in journal (Refereed) Epub ahead of print
Abstract [en]

PurposeThis study aims to investigate the determinants of bank profitability in Sweden, focusing on the impact of bank-specific, macroeconomic and industry-specific factors within a regulatory and compliance framework.Design/methodology/approachThe study uses a panel data set of Swedish banks and three econometric models, ordinary least squares (OLS), fixed effects (FE) and panel-corrected standard errors (PCSE), to address unobserved heterogeneity, heteroskedasticity, contemporaneous correlation and serial autocorrelation.FindingsThe findings reveal the critical role of bank-specific factors in shaping banks' profitability, while macroeconomic and industry variables have a negligible impact. Capital adequacy emerges as a robust determinant, underscoring its regulatory significance. Lagged profitability exerts a persistent influence across models, emphasizing the role of historical performance. Banks' revenue growth also shows consistent positive and significant effects across all models. Macroeconomic variables (GDP, inflation) show negligible impacts, while monetary policy indicators (interest rates, money supply) display instability.Originality/valueThe study's originality lies in its methodological rigor and focus on Sweden, a developed yet understudied market. The study offers novel insights into how regulatory frameworks, bank strategies and macroeconomic conditions interact to shape profitability. By contrasting OLS, FE and PCSE results, the study advances methodological discourse on panel data analysis in banking, providing a template for future research in regulated financial systems. These contributions bridge theoretical, empirical and policy gaps, enriching global understanding of profitability drivers in stable, high-compliance economies.

Place, publisher, year, edition, pages
Emerald Group Publishing Limited, 2025. p. 1-26
Keywords [en]
Bank profitability, Financial regulation, Sweden, Capital ratio, ROA, Determinants, Panel-corrected standard errors (PCSE)
National Category
Business Administration
Identifiers
URN: urn:nbn:se:sh:diva-58858DOI: 10.1108/JFRC-04-2025-0106ISI: 001648614700001Scopus ID: 2-s2.0-105026492712OAI: oai:DiVA.org:sh-58858DiVA, id: diva2:2026703
Available from: 2026-01-09 Created: 2026-01-09 Last updated: 2026-02-02Bibliographically approved

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