Title

Private Credit Under Political Influence: Evidence from France

Author(s)

Anne-Laure Delatte Anne-Laure Delatte (CNRS (Dauphine-Leda), CEPII, CEPR)

Adrien Matray Adrien Matray (Princeton University)

Noémie Pinardon-Touati Noémie Pinardon-Touati (HEC Paris)

Abstract

Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007–2017 and find that credit granted to the private sector increases by 9%–14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector’s effective independence from politically motivated distortions.

Creation Date

2020-03

Section URL ID

Paper Number

2020-56

URL

https://www.adrienmatray.com/uploads/1/2/5/1/125176898/moral_suasion_03242020.pdf

File Function

Jel

G21, G30, H74, H81

Keyword(s)

politics and banking; moral suasion; local government financing

Suppress

false

Series

13