POLITICALLY CONNECTED BANKS: SOME INDONESIAN EVIDENCE
Abstract
We investigate the impact of being politically connected on bank performance and cost of funding. We study 89 Indonesian banks over the 2001-2008 period disentangled into politically connected banks which can be state-owned banks and private banks as well as non-politically connected banks. Controlling for bank fundamental factors and time effect, we do find that political connections improve bank performance. Moreover, our results provide evidence that politically connected banks are benefited by getting a lower cost of funding. Finally, our result reveals that political connections are less valuable for foreign banks.
Keywords: Political Connections; Performance; Cost of Funding; Foreign Banks; Indonesia.
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