Political Institutions and Bank Risk-Taking Behavior
By Badar Nadeem Ashraf. 2015
172 citations recorded by the source corpus.
We examine the influence of political institutions on bank risk-taking behavior using an international sample of banks from 98 countries over the period 1998-2007. We find that bank risk-taking is significantly higher in sound political institutions countries suggesting that increased competition from alternate sources of financing due to financial constraints mitigation effect and moral hazard problems linked with better political institutions lead banks to increase bank risk-taking. Our results are economically significant, and are robust to alternative bank risk-taking measures, alternate proxies of political institutions, cross-sectional and country-level regressions, endogeneity concerns of political institutions, alternate samples, and sample extension from 1998 to 2012. Further analysis shows that positive influence of political institutions on bank risk-taking is independent of income levels of countries. Results also show that positive influence of political institutions on bank risk-taking is robust in countries having explicit deposit insurance and suggest that moral hazard problems linked with sound political institutions complement the moral hazard problems of explicit deposit insurance. We also examine the interdependence between political and legal institutions and find that political and legal institutions complement each other to influence bank risk-taking behavior.
Subfields: Accounting
View Paper: https://www.semanticscholar.org/paper/4e4776937cf18c329f9a6afe82afef3ae1966696
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Citations in the corpus
- Stock markets’ reaction to COVID-19: Cases or fatalities? (2020, unknown): “Second, panel data regression is better in capturing the time varying relationship between dependent and independent variables (Ashraf, 2017).”
- Economic policy uncertainty and banks’ loan pricing (2019, background): “Third, we also add to the studies which explore the impact of politics in banking (Brown & Dinç 2005; Dinç 2005; Jackowicz et al. 2013; Francis et al. 2014; Zhu 2015; Ashraf 2017; Ashraf et al. 2018).”