Private Credit Under Political Influence: Evidence from France

44 Pages Posted: 5 Aug 2019 Last revised: 24 Sep 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

Multiple version iconThere are 2 versions of this paper

Date Written: July 31, 2019

Abstract

Politicians influence the lending decisions of independent private banks in order to increase their chances of being re-elected. In exchange, they grant these banks access to the profitable market for loans to local government entities. Using the French credit registry between 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 shares in the market for local government debt after the election. Our results show that as long as there exist rents that politicians can allocate discretionarily, formal independence is insufficient to sever the link between political motives and the private sector.

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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