Elections, political competition and bank failure

Wai Man Liu, Phong T.H. Ngo*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    74 Citations (Scopus)

    Abstract

    We exploit exogenous variation in the scheduling of gubernatorial elections to study the timing of bank failure in the US. Using hazard analysis, we show that bank failure is about 45% less likely in the year leading up to an election. Political control (i.e., lack of competition) can explain all of this average election year fall in the hazard rate. In particular, we show that the reduction in hazard rate doubles in magnitude for banks operating in states where the governor has simultaneous control of the upper and lower houses of the state legislature (i.e., complete control) heading into an election.

    Original languageEnglish
    Pages (from-to)251-268
    Number of pages18
    JournalJournal of Financial Economics
    Volume112
    Issue number2
    DOIs
    Publication statusPublished - May 2014

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