Private Credit Under Political Influence: Evidence from France

44 Pages Posted: 9 May 2019 Last revised: 15 Feb 2020

See all articles by Anne Laure Delatte

Anne Laure Delatte

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Adrien Matray

Princeton University

Noémie Pinardon-Touati

HEC Paris

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Date Written: April 18, 2019

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: credit cycle, political connection, bank lending

Suggested Citation

Delatte, Anne Laure and Matray, Adrien and Pinardon-Touati, Noémie, Private Credit Under Political Influence: Evidence from France (April 18, 2019). Available at SSRN: https://ssrn.com/abstract=3374516 or http://dx.doi.org/10.2139/ssrn.3374516

Anne Laure Delatte

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

Adrien Matray (Contact Author)

Princeton University ( email )

Bendheim Center for Finance
26 Prospect Avenue
Princeton, NJ 08540
United States

Noémie Pinardon-Touati

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

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