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, 131 (639). 2763 – 2796. ISSN 0013-0133

Text (Saka_lending-cycles-and-real-outcomes--accepted) - Accepted Version Download (5MB)

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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
Official URL:	https://academic.oup.com/ej
Additional Information:	© 2021 Royal Economic Society
Divisions:	European Institute
Subjects:	H Social Sciences > HC Economic History and Conditions J Political Science > JN Political institutions (Europe)
JEL classification:	D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy; Administrative Processes in Public Organizations; Corruption G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy
Date Deposited:	26 May 2022 12:45
Last Modified:	15 Nov 2024 01:06
URI:	http://eprints.lse.ac.uk/id/eprint/115214

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