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Lending Cycles and Real Outcomes: Costs of Political Misalignment

Bircan, Ç. and Saka, O. ORCID: 0000-0002-1822-1309 (2021). Lending Cycles and Real Outcomes: Costs of Political Misalignment. The Economic Journal, 131(639), pp. 2763-2796. doi: 10.1093/ej/ueab020

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

Publication Type: Article
Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in The Economic Journal (OUP) following peer review. The version of record Çağatay Bircan, Orkun Saka, Lending Cycles and Real Outcomes: Costs of Political Misalignment, The Economic Journal, Volume 131, Issue 639, October 2021, Pages 2763–2796, is available online at: https://doi.org/10.1093/ej/ueab020
Publisher Keywords: Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior, Bureaucracy; Administrative Processes in Public Organizations; Corruption, Banks; Depository Institutions; Micro Finance Institutions; Mortgages, Political Economy
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Departments: School of Arts & Social Sciences > Economics
Date available in CRO: 22 Sep 2021 14:18
Date deposited: 22 September 2021
Date of acceptance: 8 March 2021
Date of first online publication: 16 March 2021
URI: https://openaccess.city.ac.uk/id/eprint/26784
[img] Text - Accepted Version
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