Regional Favoritism in Access To Credit: Just Believe It

43 Pages Posted: 24 Mar 2023

See all articles by Francis Osei-Tutu

Francis Osei-Tutu

Université de Strasbourg

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Date Written: March 24, 2023

Abstract

We examine the effect of regional favoritism on the access of firms to credit. Using firm-level data on a large sample of 29,000 firms covering 47 countries, we investigate the hypothesis that firms in the birth regions of national political leaders have better access to credit. Our evidence suggests that firms located in birth regions of political leaders are less likely to be credit constrained. The effect takes place through the demand channel: firms in leader regions face fewer hurdles in applying for loans. We find no evidence, however, of preferential lending from banks to firms in leader regions. Thus, regional favoritism affects access to credit through differences in perceptions of firm managers, not deliberate changes in the allocation of resources by political leaders.

Keywords: regional favoritism, access to credit, borrower discouragement

JEL Classification: D72, G21

Suggested Citation

Osei-Tutu, Francis and Weill, Laurent, Regional Favoritism in Access To Credit: Just Believe It (March 24, 2023). BOFIT Discussion Paper 1/2023, Available at SSRN: https://ssrn.com/abstract=4398816 or http://dx.doi.org/10.2139/ssrn.4398816

Francis Osei-Tutu (Contact Author)

Université de Strasbourg ( email )

47 avenue de la Forêt Noire
67082 Strasbourg Cedex
Strasbourg
France

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

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