Net interest margin and electoral cycle

Abstract

Purpose: The article investigates whether performance of government-owned banks is influenced by electoral considerations.

Methodology: To verify the political interference hypothesis, net interest margins recorded by banks during different stages of the electoral cycle are studied. Univariate tests are applied and random effects regression models are estimated.

Findings: It is established that government-owned banks exhibit statistically and economically significantly lower net interest margins and interest incomes during pre-electoral periods in Central European countries. The results support the view that government-owned banks do realize political goals.

Research limitations: The role of only one political factor, i.e. electoral cycle is analyzed. A comprehensive research project should encompass the effect of such factors as political competition, non-electoral political events, electoral expectations, government political complexion, and institutional development on governmentowned banks’ behaviors. It should also assess the political determinants of lending volume.

Originality: The article uses a new dataset including financial information since 1992, i.e. since the early transformation years.