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Elections, Political Competition and Bank Failure

  • Liu, Wai-Man
  • Ngo, Phong

We model and predict that politicians have incentives to delay bank failure in election years and that this incentive is exacerbated if the election is close. Our empirical application using the US data supports these predictions. At the bank level, we show that bank failure in an election year is four times less likely to occur if the election was among the most competitive (top quartile). At the state level, bank failure is about 1.8 times less likely to occur in an election year. A three point swing in the competitiveness of the election increases this election year bias to 2.2.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43603.

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Date of creation: 16 Oct 2012
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Handle: RePEc:pra:mprapa:43603
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  1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  2. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  3. Craig O. Brown & I. Serdar Dinç, 2005. "The Politics of Bank Failures: Evidence from Emerging Markets," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1413-1444, November.
  4. Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics And Politics Of The Relaxation Of Bank Branching Restrictions," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1437-1467, November.
  5. Lammertjan Dam & Michael Koetter, 2012. "Bank Bailouts and Moral Hazard: Evidence from Germany," Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2343-2380.
  6. Brandon Julio & Youngsuk Yook, 2012. "Political Uncertainty and Corporate Investment Cycles," Journal of Finance, American Finance Association, vol. 67(1), pages 45-84, 02.
  7. Rosenbluth, Frances & Schaap, Ross, 2003. "The Domestic Politics of Banking Regulation," International Organization, Cambridge University Press, vol. 57(02), pages 307-336, March.
  8. Steven D. Levitt, 2002. "Using Electoral Cycles in Police Hiring to Estimate the Effects of Police on Crime: Reply," American Economic Review, American Economic Association, vol. 92(4), pages 1244-1250, September.
  9. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  10. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series rwp01-016, Harvard University, John F. Kennedy School of Government.
  11. Kroszner, Randall S & Strahan, Philip E, 1996. " Regulatory Incentives and the Thrift Crisis: Dividends, Mutual-to-Stock Conversions, and Financial Distress," Journal of Finance, American Finance Association, vol. 51(4), pages 1285-1319, September.
  12. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  13. Husted, Thomas A & Kenny, Lawrence W, 1997. "The Effect of the Expansion of the Voting Franchise on the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 54-82, February.
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