Do election cycles, political stability, and government effectiveness matter for the risk of banks? Evidence from Indian banks

Jagannath Mvk and Debasish Maitra

Journal of Behavioral and Experimental Finance, 2023, vol. 39, issue C

Abstract: We examine whether parliamentary elections, political stability, and government effectiveness affect banks’ risk in one of the largest democracies – India. We employ four measures of bank risk – net and gross Non-Performing Loans (NPL), the extent of loans restructured, and lending to the priority sector. Using dynamic panel data with a two-step system GMM approach, we find that NPL and lending to the priority sector increase during the years parliamentary elections are held. A stable political environment reduces net NPL, while an effective government increases NPL and lending to the priority sector. Further, we document meaningful differences in the behavior of state-owned and private banks around parliamentary elections. Credit market competition and moral hazard channels drive the relationship between bank risk and elections.

Keywords: Non-performing loans; Priority sector lending; Parliamentary elections; Political stability; Government effectiveness (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214635023000448

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:39:y:2023:i:c:s2214635023000448

DOI: 10.1016/j.jbef.2023.100830

Access Statistics for this article

Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

More articles in Journal of Behavioral and Experimental Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().