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Private Credit under Political Influence: Evidence from France

Anne-Laure Delatte (), Adrien Matray and Noémie Pinardon-Touati

Working Papers from CEPII research center

Abstract: Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%--14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.

Keywords: politics and banking; moral suasion; local government financing (search for similar items in EconPapers)
JEL-codes: G21 G30 H74 H81 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-pol
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