To estimate the model we use static and dynamic estimation

To estimate the model, we use static and dynamic estimation techniques. The static estimation is the fixed effect OLS estimator to capture bank-specific differences while the dynamic estimation is the GMM estimator to capture dynamic adjustments to bank profitability. We consider dynamic adjustments to bank profitability by taking the lag of the profitability variables to take into account any possible endogeneity regarding profitability because one could argue that knowing it a profitable bank in the current year is likely to remain profitability in the next year due to profit persistence, thereby requiring analyses using lagged profitability values because today\'s profitability can potentially explain tomorrow\'s profitability. For the dynamic model, we use the Arellano and Bond (1991) first-difference GMM estimator to estimate the dynamic model. The GMM instruments are only applied to the lagged dependent variable while the other variables are considered as strictly exogenous. We report the Hansen test (or the J-statistic). The Hansen test checks for the validity, i.e. the exogeneity of the entire set of instruments as a group. Bank fixed effect is molecules included in the OLS and GMM estimations. We discuss the results in section 5.
Discussion of results
Conclusion