Government involvement in the corporate governance of banks

Abstract

On March 18, 1976, the Swedish parliament voted on a bill that, if approved, would have substantially increased both the scale and scope of government representation on bank boards. Since parliament was hung, the outcome of the vote was decided by a lottery. We exploit this lottery to study the causal effect on shareholder value of government involvement in the corporate governance of banks. We find that the rejection of the bill resulted in positive abnormal returns that persisted in the following days. The results suggest that unsolicited government involvement in the corporate governance of banks is harmful for owners.