Private Credit Under Political Influence: Evidence from France

44 Pages Posted: 5 Aug 2019 Last revised: 22 Oct 2019

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

Date Written: July 31, 2019

Abstract

Formally independent private banks change their supply of credit in the constituencies of political incumbents to improve their reelection prospects. In return, politicians grant these banks access to the profitable market for loans to local public entities in their constituencies. Using French credit registry data over 2007-2017, we find that credit to the private sector increases by 9% to 14% the year before a powerful incumbent faces a contested election. Consistent with politicians returning the favor, banks that grant more credit to private firms in pre-election years gain market share in the local public entity debt market after the election. Our results show that formal independence does not ensure the private sector's effective independence from politically-motivated distortions, if politicians have discretion over rent allocation.

Keywords: Politics and Banking, Moral Suasion, Local Government Financing

JEL Classification: G21, G30, H74, H81

Suggested Citation

Delatte, Anne Laure and Matray, Adrien and Pinardon Touati, Noémie, Private Credit Under Political Influence: Evidence from France (July 31, 2019). Available at SSRN: https://ssrn.com/abstract=3429836 or http://dx.doi.org/10.2139/ssrn.3429836

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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