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Lending cycles and real outcomes: costs of political misalignment

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journal contribution
posted on 2023-06-09, 22:47 authored by Çagatay Bircan, Orkun Saka
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.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

The Economic Journal

ISSN

0013-0133

Publisher

Oxford University Press

Department affiliated with

  • Accounting and Finance Publications

Research groups affiliated with

  • Business and Finance Research Group Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2021-02-03

First Open Access (FOA) Date

2023-03-17

First Compliant Deposit (FCD) Date

2021-02-02

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