Political Elections and Banking Efficiency in an African Emerging Economy: A Bank Ownership Decomposition Approach

ABSTRACT This study investigates how elections affect banking efficiency in an African emerging economy (Ghana), by inferring from the political choice theory and further decoupling the ownership effects of elections on diverse efficiency proxies. The study employs Tobit regression models and instrumental variable models (Tobit and fixed effect) as robustness models with year control effects for 29 banks between 2000 and 2020. While banking efficiency in the forms of technical, pure‐technical, scale, cost, allocative, and revenue is measured using DEA across private, state, listed, unlisted, domestic, and foreign banks, election is measured as a dummy. The study reveals that elections significantly lower banking efficiencies. However, the reducing effect of elections varies across types of banking efficiency indicators and ownership structures. Specifically, while elections adversely affect technical, cost, scale, allocative, and revenue efficiencies of banks, private, state, unlisted, listed, and foreign banks were mostly affected. These suggest that the decline in banking efficiencies during electioneering periods is attributable to political, policy, and fiscal uncertainties and differs significantly depending on bank ownership and efficiency types. While the study presents significant insights, future studies may investigate the effect of elections in phases to include the pre‐, during‐, and post‐election phases to understand the temporal dynamics of election effects in other emerging economies other than Ghana. The results explain the need for political stability and transparency, fostered by electoral and policy reforms, to ensure continuity and a reduction in election‐related inefficiencies. Also, bank managers must recognize and factor elections into their efficiency decision‐making. To the best of our knowledge, this study is the first to provide empirical evidence on how elections affect the diverse array of banking efficiencies across different ownership types and nature in an African emerging economy context.