“Political Liquidity Creation: Electoral Cycles and State-Owned Banks”
by Mehmet Özsoy
Özyeğin University
Place: MA-330
Abstract
This paper compares the liquidity creation of state-owned banks in Turkey with that of privately-owned banks both in normal times and around election times. Turkey provides an excellent laboratory to explore the role of state ownership in the banking industry as it is a country with a long history of state ownership of banks. Applying Berger and Bouwman (2009) framework to measure liquidity creation and using quarterly detailed regulatory dataset for the period of 2002-2017, we find that state banks create more liquidity per unit of assets than their private counterparts. More importantly, the documented statistically significant difference widens during the election quarters. Our findings suggest a divergence between behaviors of state and private banks because of political elections. We further show that the liquidity creation of state-owned banks around political elections, with respect to that of privately-owned banks, seem to not increase bank risk measured by RoaVol and Zscore but dampens state-owned banks performance measured by Roa. We finally document that the size effect can only explain the unconditional difference but it does not explain the documented difference around election quarters.
Bio
S. Mehmet Özsoy is an Assistant Professor of Financial Economics at Ozyegin University. He received his Ph.D. in Economics (2013) from Duke University, his M.A. in Economics from Koç University (2008) and his B.A. in Economics from Boğaziçi University (2006). His research interests include financial economics, financial intermediation and climate finance.
