Political connections and the impact on financial risk taking in financial institutions
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2019-08-26
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en
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Abstract
Regulators form an important link in the governance framework of the financial industry. The stability of the financial system depends to a large extent on independence and soundness of regulatory monitoring and -enforcement. Interorganizational connections, such as board interlocks, reduce de independence between firms and regulators. This dissertation studied the effect of political connections on the financial risk-taking using a sample of European listed financial institutions across a 14-year period. The results of this dissertation show that political connections between financial institutions and regulators generate higher moral hazard. Politically connected financial institutions take on more financial risk than their non-connected counterparts. The results of this dissertation imply that political connections between financial institutions and regulators can weaken the financial system by exposing it to extra risk. Apart from that this dissertation examines the moderating effect of gender diversity in boards on the effect of interlocks in which it did not find any significant results for this effect.
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Faculteit der Managementwetenschappen