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The Politics of Related Lending

Published online by Cambridge University Press:  12 April 2016

Michael Halling ,
Pegaret Pichler  and
Alex Stomper
Michael Halling*
Affiliation:
[email protected], Stockholm School of Economics, Department of Finance, Stockholm S-11383, Sweden
Pegaret Pichler
Affiliation:
[email protected], Northeastern University, D’Amore–McKim School of Business, Boston, MA 02115
Alex Stomper
Affiliation:
[email protected], Humboldt University, School of Business and Economics, Berlin D-10099, Germany, and the European Corporate Governance Institute (ECGI).
*
*Corresponding author: [email protected]
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Abstract

We analyze the profitability of government-owned banks’ lending to their owners, using a unique data set of relatively homogeneous government-owned banks; the banks are all owned by similarly structured local governments in a single country. Making use of a natural experiment that altered the regulatory and competitive environment, we find evidence that such lending was used to transfer revenues from the banks to the governments. Some of the evidence is particularly pronounced in localities where the incumbent politicians face significant competition for reelection.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 1 , February 2016 , pp. 333 - 358
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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