Financial Development, Political Connection,and Bank Profitability: Evidence from the Financial Crisis of 2008 Author: Huis-I Ting Discussant: Chia-Pin Chen NTUICF, Taipei, Taiwan December 7, 2012

I: Summary II: Comments

Interaction effects Comparison Developed vs. Developing countries Comparison Developed vs. Developing countries

Financial development - Banking sector size - Financial liberalization Financial development - Banking sector size - Financial liberalization Causes Political connection - State ownership0 Political connection - State ownership0 Political connection - State ownership Political connection - State ownership Financial development - Banking sector size - Financial liberalization Financial development - Banking sector size - Financial liberalization

Effects Political connection Bank profitability - ROA Asset quality - NPL CAR

Interaction effects Political connection Financial development Political connection Financial development

Comparison Political connection Financial development Developing countries Developed countries

Major Findings CARAsset Quality Bank Profitability Banking sector size Financial liberalization Political connection pre post developed developing ++ －－－ + － － + － {{ X

II: Comments I: Summary

Topic Interesting and well-concerned - are not clarified (enough) issues with mixed results - have important managerial implications and policy perspectives Interesting and well-concerned - are not clarified (enough) issues with mixed results - have important managerial implications and policy perspectives Interesting and well-concerned - are not clarified (enough) issues with mixed results - have important managerial implications and policy perspectives Interesting and well-concerned - are not clarified (enough) issues with mixed results - have important managerial implications and policy perspectives

Literature Well-documented and up-to-date

Hypotheses - Financial development improvement hypothesis - Financial development improvement hypothesis - External capital dependence hypothesis

Data and sample - from 1,669 banks / 190 countries to 521 banks / 42 countries (p.8) - from 934 banks / 75 countries to 266 banks / 54 countries (p.11) Which one is true for the empirical sample? - from 1,669 banks / 190 countries to 521 banks / 42 countries (p.8) - from 934 banks / 75 countries to 266 banks / 54 countries (p.11) Which one is true for the empirical sample?

Data and sample - No banks from China, Korea or Hong Kong? - No banks from China, Korea or Hong Kong? - Possible sample bias?

Variables - Banks belonging to different countries have different Rmt's in eq. (1)? - In eq. (3), are the portfolio returns (Rpt) equally- or value-weighted? - Is Political Connection properly proxied by state ownership? - Banks belonging to different countries have different Rmt's in eq. (1)? - In eq. (3), are the portfolio returns (Rpt) equally- or value-weighted? - Is Political Connection properly proxied by state ownership? - Banks belonging to different countries have different Rmt's in eq. (1)? - In eq. (3), are the portfolio returns (Rpt) equally- or value-weighted? - Is Political Connection properly proxied by state ownership?

Results - How to set up the Rmt's for full sample, developed countries, and developing countries, respectively (Table 3)? - For developed countries, state ownership positively affects ROA; - For developing countries, state ownership negatively affects ROA. This seems to contradict the experiences of Taiwan (and China)? - How to set up the Rmt's for full sample, developed countries, and developing countries, respectively (Table 3)? - For developed countries, state ownership positively affects ROA; - For developing countries, state ownership negatively affects ROA. This seems to contradict the experiences of Taiwan (and China)?

Results - No explanation on the insignificant interaction of financial development and political connection on ROA or NPL for developing countries? - Possible time lag effects (on ROA and NPL)? - No explanation on the insignificant interaction of financial development and political connection on ROA or NPL for developing countries? - Possible time lag effects (on ROA and NPL)?

Conclusions - More managerial/policy implications could be drawn from the empirical findings - Strategic actions for banks falling into various categories formulated by financial development, political connection and developed/developing countries - More managerial/policy implications could be drawn from the empirical findings - Strategic actions for banks falling into various categories formulated by financial development, political connection and developed/developing countries