Should banks be averse to elections? A GMM analysis of recent elections in Ghana

Abstract

Purpose Actions of incumbent politicians and firms’ managers during election years have been cited as sources of many problems that afflict economies and business entities. Given the controversies surrounding the impact of elections on firms’ soundness, this paper poses a question of whether banks should be averse to elections. Specifically, this study aims to investigate the impact of elections on the profitability and efficiency of banks. Design/methodology/approach Based on the authors’ knowledge, this is maiden analysis in this context for Ghana where relatively advanced appropriate GMM technique has been used on annual data from 2012 to 2016. Findings This study reveals that banks make higher returns in election years. Additionally, the authors report that government’s economic policies in election years are detrimental to management efficiency, though insignificant. Practical implications From an emerging economy perspective, this study would guide policymakers in designing policies that respond to, or minimize, the impact of elections on bank performance. The result of this analysis would also substantiate the market reaction to the changes in the economic, political and financial conditions. Originality/value This analysis suggests that firms’ performances in an election year depend on policies and political institutions in place. The authors argue that Ghana, with its exemplary democratic credentials and strong institutions, living alongside a high perception of corruption, is different. The contribution to literature is, first, by limiting this work to the banking sector of Ghana and, second, by incorporating the behaviors of incumbent governments and individuals in the regression specification model.

Effect of presidential elections on investor herding behaviour in African stock markets

“…Given the fact that the Ghanaian financial sector is dominated by banking institutions, we argue in tandem with Broni et al (2019) that the financial services sector of Ghana as a whole is insulated from the effect of presidential elections. This is because banks act as safe havens for investors during election years (Broni et al, 2019); in election years investors mostly convert their investment into cash and deposit with banks because of the uncertainties associated with elections. Earlier results presented in Table 3 show the absence of investor herding behaviour in the financial services sector of Mauritius, Nigeria and South Africa.…”

“…As shown in Table 6, the results show that there is no presidential election effect on investor herding behaviour in the financial services sector of Ghana for the three election windows (12 months, 6 months and 3 months). An earlier study by Broni et al (2019) documents that the Ghanaian banking industry is insulated from the effect of presidential elections. Given the fact that the Ghanaian financial sector is dominated by banking institutions, we argue in tandem with Broni et al (2019) that the financial services sector of Ghana as a whole is insulated from the effect of presidential elections.…”

“…An earlier study by Broni et al (2019) documents that the Ghanaian banking industry is insulated from the effect of presidential elections. Given the fact that the Ghanaian financial sector is dominated by banking institutions, we argue in tandem with Broni et al (2019) that the financial services sector of Ghana as a whole is insulated from the effect of presidential elections. This is because banks act as safe havens for investors during election years (Broni et al, 2019); in election years investors mostly convert their investment into cash and deposit with banks because of the uncertainties associated with elections.…”

Corruption's effect on BRICS countries' economic growth: a panel data analysis

“…This is illustrated by the negative and significant coefficient of government spending, implying that corruption in BRICS economies aggravates the misallocation of resources, reducing economic performance. The misallocation of resources may channel through inefficient bureaucracy (Leite and Weidmann, 1999), rent-seeking behaviour (Yaw Broni et al. , 2019; Baumol, 1990; Shleifer and Vishny, 1993), changes in the relative price of goods and services (Mauro, 1995) and uncertainty (Pellegrini and Gerlagh, 2004).…”

The Efficiency of Local and International Banks in Indonesia

“…The Total Financing is the provision of money or bills equivalent, based on approval or agreement between Banks with another party that requires the financed party to return the funds or bill after a certain period with a reward or for the results by (Broni et al, 2019). Without operating income, the Bank will not run properly.…”