Does Political Influence in Banking Survive Democratic Transition?

Abstract

While democratization is often fueled by the impetus to improve governance, particularly in politically connected industries, little empirical evidence exists as to whether these transitions actually lead to these desired changes. This paper seeks to understand whether political connections in banking survive democratic transition using the connectedness of political elites on Indonesia’s bank boards over the democratic transition of 1997. Panel estimates indicate that largely the answer is no; both political connectedness of bank board’s decreases after democratization as well as the influence of politicians on bank financial outcomes as well.

Keywords: democracy, political economy, authoritarianism, elite theory

JEL Classification: G21, N25, N45, P16