Hostname: page-component-cd9895bd7-hc48f Total loading time: 0 Render date: 2024-12-24T18:38:31.706Z Has data issue: false hasContentIssue false
  • English
  • Français

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]
Get access Rights & Permissions [Opens in a new window]

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 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bae, K.-H.; Kang, J.-K.; and Kim, J.-M.. “Tunneling or Value Added? Evidence from Mergers by Korean Business Groups.” Journal of Finance, 57 (2002), 2695–2740.CrossRefGoogle Scholar
Bertrand, M.; Duflo, E.; and Mullainathan, S.. “How Much Should We Trust Differences-in-Differences Estimates?” Quarterly Journal of Economics, 119 (2004), 249–275.Google Scholar
Cameron, A. C., and Miller, D. L.. “A Practitioner’s Guide to Cluster-Robust Inference.” Journal of Human Resources, 50 (2015), 317–372.Google Scholar
Claessens, S., and Laeven, L.. “What Drives Bank Competition? Some International Evidence.” Journal of Money, Credit, and Banking, 36 (2004), 563–583.Google Scholar
Cole, S. “Fixing Market Failures or Fixing Elections? Agricultural Credit in India.” American Economic Journal: Applied Economics, 1 (2009), 219–250.Google Scholar
Dinç, I. S. “Politicians and Banks: Political Influences on Government-Owned Banks in Emerging Markets.” Journal of Financial Economics, 77 (2005), 453–479.Google Scholar
Dinç, I. S., and Gupta, N.. “The Decision to Privatize: Finance and Politics.” Journal of Finance, 66 (2011), 241–270.CrossRefGoogle Scholar
Drazen, A., and Eslava, M.. “Electoral Manipulation via Voter-Friendly Spending: Theory and Evidence.” Journal of Development Economics, 92 (2010), 39–52.Google Scholar
Eminescu, S. “Economy and Finance: Structure of Government Debt in Europe.” Eurostat Statistics in Focus, 68 (2011).Google Scholar
Iannotta, G.; Nocera, G.; and Sironi, A.. “Ownership Structure, Risk, and Performance in the European Banking Industry.” Journal of Banking and Finance, 31 (2007), 2127–2149.CrossRefGoogle Scholar
Khwaja, A. I., and Mian, A.. “Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market.” Quarterly Journal of Economics, 120 (2005), 1371–1411.Google Scholar
La Porta, R.; Lopez-de-Silanes, F.; and Shleifer, A.. “Government Ownership of Banks.” Journal of Finance, 57 (2002), 265–301.Google Scholar
La Porta, R.; Lopez-de-Silanes, F.; and Zamarripa, G.. “Related Lending.” Quarterly Journal of Economics, 118 (2003), 231–267.Google Scholar
Laeven, L. “Insider Lending and Bank Ownership: The Case of Russia.” Journal of Comparative Economics, 29 (2001), 207–229.Google Scholar
Lamoreaux, N. R. Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England. New York, NY: Cambridge University Press (1994).CrossRefGoogle Scholar
Levine, R. “The Corporate Governance of Banks: A Concise Discussion of Concepts and Evidence.” Working Paper, World Bank Policy Research (2004).Google Scholar
Maurer, N., and Haber, S.. “Related Lending and Economic Performance: Evidence from Mexico.” Journal of Economic History, 67 (2007), 551–581.Google Scholar
Meyer, B. D. “Natural and Quasi-Experiments in Economics.” Journal of Business and Economic Statistics, 13 (1995), 151–161.Google Scholar
Micco, A.; Panizza, U.; and Yanez, M.. “Bank Ownership and Performance: Does Politics Matter?” Journal of Banking and Finance, 31 (2007), 219–241.CrossRefGoogle Scholar
Perignon, C., and Vallee, B.. “Political Incentives and Financial Innovation: The Strategic Use of Toxic Loans by Local Governments.” Working Paper, HEC Paris (2013).Google Scholar
Sapienza, P. “The Effects of Government Ownership on Bank Lending.” Journal of Financial Economics, 72 (2004), 357–384.Google Scholar