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Political Connections and Banking Industry Performance: A Cross-Country Analysis

Author

Listed:
  • Panagiota Papadimitri
  • Fotios Pasiouras

Abstract

This study examines the association between political connectiveness in the banking sector and the aggregate profitability of the sector. Evidence from an international sample of 59 countries points towards a positive effect. This finding holds while controlling for a variety of country-level characteristics, such as macroeconomic conditions, economic freedom, quality of institutions, government ownership of banks, banking sector characteristics and income level. Moreover, the positive relationship persists when using alternative sample specifications and proxies of political connectedness. Further analysis shows that this relationship is moderated by the control of corruption and the rule of law. In more detail, the results show that political connections are less valuable in countries with a better institutional environment along these dimensions.

Suggested Citation

  • Panagiota Papadimitri & Fotios Pasiouras, 2023. "Political Connections and Banking Industry Performance: A Cross-Country Analysis," Review of Corporate Finance, now publishers, vol. 3(3), pages 417-450, July.
    • Handle: RePEc:now:jnlrcf:114.00000046
    DOI: 10.1561/114.00000046
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    Cited by:

    1. Douglas Cumming & Zachary Glatzer & Omrane Guedhami, 2023. "Institutions, digital assets, and implications for economic and financial performance," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(3), pages 487-513, September.

    More about this item

    Keywords

    Political connections; banking industry; cross-country;
    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
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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