Lending Cycles and Real Outcomes: Costs of Political Misalignment

102 Pages Posted: 16 Feb 2021

See all articles by Cagatay Bircan

Cagatay Bircan

European Bank for Reconstruction and Development (EBRD)

Orkun Saka

University of Sussex; London School of Economics & Political Science (LSE)

Multiple version iconThere are 4 versions of this paper

Date Written: 2021

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 effient provinces and industries suffer the greatest constraints, reducing aggregate productivity.

JEL Classification: G210, D720, D730, P160

Suggested Citation

Bircan, Cagatay and Saka, Orkun, Lending Cycles and Real Outcomes: Costs of Political Misalignment (2021). CESifo Working Paper No. 8883, Available at SSRN: https://ssrn.com/abstract=3784392

Cagatay Bircan (Contact Author)

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom
+442073388508 (Phone)
+442073386111 (Fax)

HOME PAGE: http://cagataybircan.com

Orkun Saka

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
9
Abstract Views
37
PlumX Metrics