Lending cycles and real outcomes: costs of political misalignment

Çağatay Bircan and Orkun Saka

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

JEL-codes: D72 D73 G21 P16 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021-10-04
New Economics Papers: this item is included in nep-ara, nep-bec and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in The Economic Journal, 4, October, 2021, 131(639), pp. 2763 – 2796. ISSN: 0013-0133

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:115214

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