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Political Influence and the Banking Sector: Evidence from Korea *
Author(s) -
An Jaewook,
Bae SangKun,
Ratti Ronald A.
Publication year - 2007
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2007.00465.x
Subject(s) - forbearance , loan , government (linguistics) , business , panel data , politics , control (management) , de facto , financial system , institution , non performing loan , economics , finance , political science , management , linguistics , philosophy , law , econometrics
This paper uses panel data to compare the performance of Korean banks with and without effective government control of the appointment of chief operating officers. A privatization programme succeeded in spreading ownership of banks widely among the public, but government retention of an ownership stake in an institution meant de facto control by government. Despite charging lower loan rates, banks controlled by government experience higher bad loans ratios. This is in line with expectations of regulatory forbearance and government protection for recipients of political loans. Banks controlled by government are less efficient than privately controlled banks and bad loan variables are higher at banks with lower efficiency scores.