Regional Favoritism and Access to Credit

Francis Osei-Tutu () and Laurent Weill
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Francis Osei-Tutu: Paris School of Business (PSB)

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: We examine the effect of regional favoritism on the access of firms to credit. Using firm-level data on a large sample of 29,000 firms covering 47 countries, we investigate the hypothesis that firms in the birth regions of national political leaders have better access to credit. Our evidence suggests that firms located in birth regions of political leaders are less likely to be credit constrained. The effect takes place through the demand channel: firms in leader regions feel less discouraged in applying for loans. We find no evidence, however, of preferential lending from banks to firms in leader regions. Thus, regional favoritism affects access to credit through differences in perceptions of firm managers, not deliberate changes in the allocation of resources by political leaders.

Keywords: regional favoritism; access to credit; borrower discouragement. (search for similar items in EconPapers)
JEL-codes: D72 G21 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cfn, nep-sbm and nep-ure
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http://ifs.u-strasbg.fr/large/publications/2023/2023-04.pdf (application/pdf)

Related works:
Journal Article: Regional favoritism in access to credit (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2023-04

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