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National politics and bank default risk in the eurozone

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  • Eichler, Stefan
  • Sobański, Karol

Abstract

We study the impact of national politics on default risk of eurozone banks as measured by the stock market-based Distance to Default. We find that national electoral cycles, the power of the government as well as the government’s party ideological alignment significantly affect the stability of banks in the eurozone member countries. Moreover, we show that the impact of national politics on bank default risk is more pronounced for large as well as weakly capitalized banks.

Suggested Citation

  • Eichler, Stefan & Sobański, Karol, 2016. "National politics and bank default risk in the eurozone," Journal of Financial Stability, Elsevier, vol. 26(C), pages 247-256.
    • Handle: RePEc:eee:finsta:v:26:y:2016:i:c:p:247-256
    DOI: 10.1016/j.jfs.2016.07.008
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    3. MVK, Jagannath & Maitra, Debasish, 2023. "Do election cycles, political stability, and government effectiveness matter for the risk of banks? Evidence from Indian banks," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    4. Faaza Fakhrunnas & Wulan Dar & Mustika Noor Mifrahi, 2018. "Macroeconomic effect and risk-taking behavior in a dual banking system," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 10(2), pages 165-176, Oktober.
    5. Rihem Braham & Lotfi Belkacem & Christian de Peretti, 2018. "The role of political patronage on risk-taking behavior of banks in Middle East and North Africa region," Working Papers hal-01762523, HAL.
    6. Kouzez, Marc, 2023. "Political environment and bank performance: Does bank size matter?," Economic Systems, Elsevier, vol. 47(1).
    7. Mazboudi, Mohamad & Hasan, Iftekhar, 2018. "Secrecy, information shocks, and corporate investment: Evidence from European Union countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 54(C), pages 166-176.
    8. Tran Huynh & Silke Uebelmesser, 2022. "Early warning models for systemic banking crises: can political indicators improve prediction?," Jena Economics Research Papers 2022-007, Friedrich-Schiller-University Jena.
    9. Matousek, Roman & Panopoulou, Ekaterini & Papachristopoulou, Andromachi, 2020. "Policy uncertainty and the capital shortfall of global financial firms," Journal of Corporate Finance, Elsevier, vol. 62(C).
    10. Mazboudi, Mohamad & Hasan, Iftekhar, 2017. "Secrecy, information shocks, and corporate investment: Evidence from European Union countries," Bank of Finland Research Discussion Papers 19/2017, Bank of Finland.
    11. Braham, Rihem & de Peretti, Christian & Belkacem, Lotfi, 2020. "The role of political patronage in the risk-taking behaviour of banks in the Middle East and North Africa," Research in International Business and Finance, Elsevier, vol. 53(C).
    12. Paolo Canofari & Alessandro Ponte, 2018. "Chinese and European Financial Systems: Instability Drivers and Contagion Channels," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(4), pages 311-324, November.
    13. Islam, Md Shahidul & Alam, Md Samsul & Bin Hasan, Shehub & Mollah, Sabur, 2022. "Firm-level political risk and distance-to-default," Journal of Financial Stability, Elsevier, vol. 63(C).
    14. Mehmet Asutay & Noor Zahirah Mohd Sidek, 2021. "Political economy of Islamic banking growth: Does political regime and institutions, governance and political risks matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4226-4261, July.
    15. Tonmoy Choudhury & Muhammad Kamran & Hadrian Geri Djajadikerta & Tapan Sarker, 2023. "Can Banks Sustain the Growth in Renewable Energy Supply? An International Evidence," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 35(1), pages 20-50, February.
    16. Hasan, Iftekhar & Khurshed, Arif & Mohamed, Abdulkadir & Wang, Fan, 2018. "Do venture capital firms benefit from a presence on boards of directors of mature public companies?," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 125-140.

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    More about this item

    Keywords

    Bank default risk; Political factors; Eurozone; Stock market; Distance to default;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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