Parliamentary election cycles and the Turkish banking sector

Abstract

This paper analyzes the effects of parliamentary election cycles on the Turkish banking system. Using annual bank-level data representing all banks in Turkey during 1963-2007, we present evidence of meaningful differences in the structure of bank assets, liabilities and financial performance across different stages of the parliamentary election cycle. However, we find that government-owned banks' behavior does not meaningfully differ from that of either domestic and foreign-owned private sector banks before, during or after elections. Our estimates also show that government-owned banks underperform both domestic and foreign-owned private sector counterparts.JEL classification: G21, G28

Political transition and bank performance: How important was the Arab Spring?

“…Had these countries not been affected by Arab Spring, their profitability would have been, on average, nearly USD 100 million higher. These findings are consistent with prior evidence which suggests that political uncertainty adversely affects bank performance (Micco et al, 2007;Baum et al, 2010).…”

“…Since the data ends in 2012 which also coincides with the Arab Spring for most countries, it is not possible to include lead values of the variable. documented in prior empirical research (Baum et al, 2010;Englmaier and Stowaseer, 2012;Kumar, 2014). The results in the analysis appear to suggest that political transition might not necessarily impact bank lending.…”

Role of Bank Credit on Local Growth: Do Politics and Crisis Matter?

“…Although state-owned banks have a higher market share in general election years, no significant difference exists between general election years and non-election years. This finding supports the results of Baum et al (2010), which hold that state-owned banks in Turkey do not change their lending activity during general election years.…”

“…Later, Micco et al (2007) find that stateowned banks perform worse than private banks and that the disparity between them widens during election years, especially in developing countries. 12 Baum et al (2010) examine the effects of general elections on the Turkish banking system between 1963 and 2007 and observe no significant difference between lending behavior of state-owned and other types of banks during parliamentary elections. Jackowicza et al (2012) find that although state-owned banks charge significantly lower interest rates on loans in the years of parliamentary elections in Central European countries, their loan volume does not change significantly.…”

Democratization and the depoliticization of the banking sector: Are all banks affected equally?

“…Theory and subsequent empirical results on the impact of political influence in banking are mixed; while it is logical from the preferential access view that political connectedness may provide special treatment that would enhance performance (Faccio 2006;Faccio, Masulis, and McConnell 2006;Fisman 2001;Khwaja and Mian 2005), if political connectedness subjects a bank to being a vehicle with which politicians pursue political rather than profit-motivated goals, then the political objectives view suggests the connectedness of banks may in fact be detrimental to banks' financial performance (Baum, Caglayan, and Talavera 2010;Dinc 2005;Shleifer and Vishny 1994).…”