What Do Development Banks Do? Evidence from BNDES, 2002-2009

53 Pages Posted: 8 Dec 2011 Last revised: 31 May 2014

See all articles by Sergio G. Lazzarini

Sergio G. Lazzarini

Ivey Business School, Western University; Insper Institute of Education and Research

Aldo Musacchio

Brandeis University- International Business School; National Bureau of Economic Research

Rodrigo Bandeira-de-Mello

Getulio Vargas Foundation (FGV-EAESP)

Rosilene Marcon

UNIVALI - Universidade do Vale do Itajai

Date Written: May 2014

Abstract

While some authors view development banks as an important tool to alleviate capital constraints in scarce credit markets and unlock productive investments, others see those banks as conduits of cheap loans to politically-connected firms that could obtain capital elsewhere. We test these contrasting views using data on loans and equity allocations in the period 2002-2009 by the Brazilian National Development Bank (BNDES), one of the largest development banks in the world. In our fixed effect regressions, we find that BNDES’ allocations do not seem to affect firm-level operational performance and investment decisions, although they do reduce firm-level cost of capital due to the governmental subsidies accompanying loans. Next, examining the selection process through which BNDES’ capital is allocated to firms, we find that BNDES apparently selects firms with good operational performance but also provides more capital to firms with political connections (measured as campaign donations to politicians who won an election). Yet, we do not find evidence that BNDES is systematically bailing out firms. In general, BNDES appears to be generally selecting firms with capacity to repay their loans, as regular commercial banks would do.

Keywords: Development banks, industrial policy, national champions, political economy

JEL Classification: O16, O25, H1, L3

Suggested Citation

Lazzarini, Sergio Giovanetti and Musacchio, Aldo and Bandeira-de-Mello, Rodrigo and Marcon, Rosilene, What Do Development Banks Do? Evidence from BNDES, 2002-2009 (May 2014). Available at SSRN: https://ssrn.com/abstract=1969843 or http://dx.doi.org/10.2139/ssrn.1969843

Sergio Giovanetti Lazzarini (Contact Author)

Ivey Business School, Western University ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil
55-11-45042387 (Phone)

Aldo Musacchio

Brandeis University- International Business School ( email )

415 South Street MC 32
Waltham, MA 02454-9110
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/aldo_musacchio

Rodrigo Bandeira-de-Mello

Getulio Vargas Foundation (FGV-EAESP) ( email )

R Itapeva, 474 11º. andar
São Paulo, São Paulo 01332-000
Brazil
+ (55 11) 3799-7740 (Phone)
+ (55 11) 3799-7740 (Fax)

HOME PAGE: http://www.eaesp.fgvsp.br

Rosilene Marcon

UNIVALI - Universidade do Vale do Itajai ( email )

Programa de Pós-Graduação em Administração
SC 88010002
Brazil
+554832799552 (Phone)
+554832799552 (Fax)

HOME PAGE: http://www.univali.br/ppga

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