Working Paper: CEPR ID: DP9621
Authors: Hans Degryse; Thomas Lambert; Armin Schwienbacher
Abstract: Initially, voting rights were limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development as this new electorate has lower financial holdings and benefits less from the uncertainty and financial returns from stock markets. Our panel data evidence covering 1830-1999 shows that tighter restrictions on the voting franchise induce a greater stock market development, whereas a broader voting franchise is more conducive towards the banking sector, consistent with Perotti and von Thadden (2006). Our results are robust to controlling for other political determinants and endogeneity.
Keywords: banking sector; financial development; financial structure; political economy; stock markets; voting franchise
JEL Codes: D72; G10; O16; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 25-year delay in adopting universal suffrage (P39) | Increase in relative importance of stock markets over banking systems (F65) |
| Voting franchise expansion (K16) | Financial development (O16) |
| Tighter restrictions on voting franchise (K16) | Greater stock market development (G10) |
| Broader voting rights (K16) | Banking sector development (O16) |
| Voting franchise expansion (K16) | Stock market capitalization (G10) |
| Voting franchise expansion (K16) | Banking sector development (O16) |