Lending cycles and real outcomes: costs of political misalignment

Bircan, Çağatay and Saka, Orkun (2021) Lending cycles and real outcomes: costs of political misalignment. The Economic Journal. ISSN 0013-0133

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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.

Item Type: Article
Keywords: Bank credit, Electoral cycle, State-owned banks, Misallocation
Schools and Departments: University of Sussex Business School > Accounting and Finance
Research Centres and Groups: Business and Finance Research Group
Subjects: H Social Sciences > HG Finance
H Social Sciences > HG Finance > HG0201 Money
H Social Sciences > HG Finance > HG1501 Banking
J Political Science > JF Political institutions (General)
J Political Science > JS Local government Municipal government
Depositing User: Orkun Saka
Date Deposited: 03 Feb 2021 10:53
Last Modified: 12 Apr 2021 13:45
URI: http://sro.sussex.ac.uk/id/eprint/96886

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