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The effect of the political connections of government bank CEOs on bank performance during the financial crisis

Hung-Kun Chen, Yin-Chi Liao, Chih-Yung Lin and Ju-Fang Yen

Journal of Financial Stability, 2018, vol. 36, issue C, 130-143

Abstract: This study investigates how the political connections of government bank CEOs affected their banks’ performance during the 2007–2009 financial crisis. Examination of global data shows that government banks with politically connected CEOs experienced significantly higher loan default rates and worse operating performance during the crisis than those without politically connected CEOs. However, these politically connected CEOs were less likely than others to be penalized for the poor performance of their banks. Our evidence suggests that politically connected CEOs of government banks can influence a bank’s lending decisions by using their political power and influence to relax lending standards and to reap private benefits that thus raise their banks’ sensitivity to a crisis.

Keywords: Political connections; Government banks; Financial crisis; Institutional ownership; Country corruption and governance (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G34 (search for similar items in EconPapers)
Date: 2018
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Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

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Handle: RePEc:eee:finsta:v:36:y:2018:i:c:p:130-143