Work

Lending Cycles and Real Outcomes: Costs of Political Misalignment

Year: 2021

Type: article

Abstract: We document a strong political cycle in bank credit and industry outcomes in Turkey. In line with theories of tactical redistribution, state-owned banks systematically adjust their lending around local elections compared with private banks in the same province based on electoral competition and political alignment of incumbent mayors. This effect only exists in corporate lending and creates credit constraints for firms in opposition areas, which suffer drops in assets, employment and sales but not firm entry. Financial resources and factors of production are misallocated as more efficient provinces and industries suffer the greatest constraints, reducing aggregate productivity.

Source: The Economic Journal

DOI: 10.1093/ej/ueab020

Authors: Çağatay Bircan, Orkun Saka

Institutions: European Bank for Reconstruction and Development, University of Sussex

Language: English

Topic: Political Influence and Corporate Strategies

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: green

Funder: Economic and Social Research Council