Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238886 
Year of Publication: 
2018
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 11 [Issue:] 3 [Publisher:] MDPI [Place:] Basel [Year:] 2018 [Pages:] 1-10
Publisher: 
MDPI, Basel
Abstract: 
This study examines whether state-owned banks face political pressure and whether the improvement in political institutions alleviates this pressure. The theory of political benefits argues that politicians use state-owned banks for political purposes such as obtaining and maintaining political support. We reviewed extant empirical research and found that the existing evidence is mixed; some studies support while others reject the theory. In this backdrop, we analyzed a sample of 185 state-owned banks from 51 developing countries over the period 1998-2012 and provide renewed evidence supporting the theory. Specifically, we found that state-owned banks face significant political pressure in developing countries; that is, they lend more and earn less in election years. Next, we observed that the political pressure is prevalent only in the countries with weak political institutions. Strong political institutions in the form of higher constraints on policy change decisions of incumbent government and higher democratic accountability are helpful in eliminating political pressure on state-owned banks in developing countries.
Subjects: 
political institutions
state-owned banks
elections
political pressure
bank lending
bank profitability
JEL: 
G18
G21
G28
P16
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article

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