Do Elections Delay Regulatory Action?

50 Pages Posted: 27 Sep 2013 Last revised: 11 Jan 2018

See all articles by J. Tyler Leverty

J. Tyler Leverty

University of Wisconsin - Madison

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science

Date Written: October 27, 2017

Abstract

This paper investigates whether elections delay regulatory action against failing financial institutions by exploiting the cross-sectional and time-series heterogeneity in the exogenous electoral cycles of U.S. insurance regulators and governors. We find causal evidence that regulators delay interventions before elections. The extent of the delay is larger for elected regulators than regulators appointed by the governor. Interventions by appointed regulators are less likely before competitive gubernatorial elections. Regulatory governance mechanisms that constrain the discretion of regulators reduce the delays of appointed regulators but not elected. Finally, we find evidence that suggests electoral delays increase the ultimate costs of failure.

Keywords: Government Policy and Regulation, Political Economy, Insurance, Electoral Cycles, Bureaucrats, Politicians, Incentives

JEL Classification: G28, G22, D72, D73

Suggested Citation

Leverty, J. Tyler and Grace, Martin F., Do Elections Delay Regulatory Action? (October 27, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2331018 or http://dx.doi.org/10.2139/ssrn.2331018

J. Tyler Leverty (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

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