The political economy of banks’ cash holdings
Abstract
Purpose
Our paper explores the political determinants of bank cash holdings. We selected as our sample banks from G7 (to proxy developed economies) and BRICS (to proxy emerging markets).
Design/methodology/approach
We collected data on banks' financial information from 2009 to 2019, totaling 5,438 banks. We employ regressions, two-staged least squares and matching to assess the impact of political determinants on bank cash holdings.
Findings
We find that banks in countries with higher corruption levels tend to accumulate more cash. Additionally, our paper shows that state-owned banks generally hoard more cash, except in election years, highlighting the political nature of these banks. We present further results regarding banks in G7 countries versus BRICS, the effects of the common law legal system, as well as the interplay between election years and unstable sources of funding.
Originality/value
Up to this point, no paper has analyzed the political determinants of banks' cash holdings. Our paper improves our current understanding on how legal systems, corruption levels, state ownership and elections play a role in bank cash holdings.
Keywords
Acknowledgements
The authors thank participants and discussants at the 2024 Luso-Brazilian Finance Meeting, 2023 Elsevier Finance Conference, 2023 Society for the Advancement of Socio-Economics Conference, 2023 International Risk Management Conference, 2023 International Conference on Empirical Economics (Penn State University) and 2023 Brazilian Finance Meeting. The leading author also thanks the support from FAPERJ – Grant “Jovem Cientista do Nosso Estado” SEI-260003/003309/2022.
Citation
Leite, R.d.O., Mendes, L. and Nascimento, I. (2024), "The political economy of banks’ cash holdings", Journal of Economic Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JES-08-2024-0550
Publisher
:Emerald Publishing Limited
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