Description:
This paper examines the effect of official turnover on risk-taking by commercial banks. We find a positive relationship between official turnover and the risk taking of commercial banks and this result holds for various robustness checks and endogeneity tests. This effect may stem from information asymmetry and shocks to the local economy caused by local official turnover. Further analysis reveals that this effect is concentrated in the observations for nonelection years, for banks located in regions with poor credit environments or high loan market competition, and for smaller (vs. larger) banks. These findings advance our understanding of the economic consequences of official turnover on commercial banks