The Political Economy of Bank Lending : Evidence from an Emerging Market
This study investigates the existence of political rents in bank lending, using a comprehensive loan-level data set of the universe of commercial loans in Mexico from 2003 to 2012. Identification relies on changes in the state of origin of a senate...
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Format: | Working Paper |
Language: | English en_US |
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World Bank, Washington, DC
2016
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Online Access: | http://documents.worldbank.org/curated/en/2016/02/25970617/political-economy-bank-lending-evidence-emerging-market http://hdl.handle.net/10986/23915 |
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okr-10986-23915 |
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oai_dc |
repository_type |
Digital Repository |
institution_category |
Foreign Institution |
institution |
Digital Repositories |
building |
World Bank Open Knowledge Repository |
collection |
World Bank |
language |
English en_US |
topic |
EMPLOYMENT MONETARY POLICY BORROWER BASIS POINTS INTEREST INCOME GOVERNMENT BANK INDIVIDUAL LOANS CHECKS ACCOUNTING INTEREST RATE SPREAD SMALL BANKS BANKING INDUSTRY INFORMATION SYSTEM LOAN PERFORMANCE INTEREST LAWS DUMMY VARIABLES LOAN MARKET CREDIT AVAILABILITY PRIVATIZATION INDUSTRY INTEREST RATE EXCHANGE STRATEGIES RESOURCE ALLOCATION LIQUIDITY SERVICES DEVELOPING COUNTRIES DEBTOR GOVERNMENT BORROWING PUBLIC SERVICES POLITICAL ECONOMY DEFAULT PROBABILITY HOUSING REVENUES POSITIVE COEFFICIENT MORTGAGE LOAN SPREADS LOAN ASYMMETRIC INFORMATION BUDGET CONSTRAINTS RENEGOTIATION PROJECTS PROBABILITY OF DEFAULT BORROWERS TAX NON-PERFORMING LOANS TREATIES DUMMY VARIABLE SAVING RESERVE BANKRUPTCY LOAN CONTRACT BENEFICIARIES INTERNATIONAL BANK SOFT BUDGET CONSTRAINTS LENDER INSTRUMENTS BUDGET BANK LENDING TERMS OF CREDIT MATURITY SMALL BUSINESS CAPITAL ALLOCATION SAVINGS CREDIT WORTHINESS COLLATERAL REQUIREMENT TELECOMMUNICATIONS MORAL HAZARD COMMERCIAL BANK BANK PRIVATIZATION TRANSPORT CONSUMER CREDIT FINANCIAL STUDIES PORTFOLIOS DEBTS CONTRACTS FINANCES PRIVATE BANKS TRADING PRODUCTIVITY OPTIONS LENDING DECISIONS EMERGING MARKET DOMESTIC BANKS MARKETS DEBT RETURN LEGISLATION LOAN MATURITY BUSINESS CYCLE GOVERNMENT BORROWINGS BANK LIQUIDITY INTERNATIONAL ECONOMICS BASIS POINT SOFT BUDGET CONSTRAINT LOANS LABOR PUBLIC SECTOR BANKS INVESTMENT OPPORTUNITIES ENTERPRISES SMALL BORROWERS FINANCE LOAN TERMS TAXES BANKING SECTOR BANK BALANCE SHEET BAILOUT BANKS TRANSACTIONS MACROECONOMIC ENVIRONMENT BUDGET CONSTRAINT FEDERAL RESERVE GOOD ACCOUNTABILITY BAD DEBTS COMMERCIAL CREDIT OWNERSHIP STRUCTURE MARKET FAILURES ACCESS TO CAPITAL FINANCIAL CRISIS LOAN QUANTITIES FUTURE VALUE SUPPLY OF CREDIT SMALL BUSINESS LENDING GOVERNMENT BANKS DEFAULT RATES BANK RETURNS CREDIT CONTRACT REGULATORY REPORTS FOREIGN BANKS COMMERCIAL LOANS SHARES LOAN SPREAD BALANCE SHEET MARKET DEFAULT LOAN DEMAND INSIDER TRADING ECONOMICS SECURITIES TREASURY LENDING DECISION GOVERNANCE SHAREHOLDERS BUSINESS CYCLES TAXATION ECONOMIC DEVELOPMENT CORPORATE DEBT PUBLIC SAVING BANK LOANS FINANCIAL MARKET LOAN VOLUME INVESTMENT OUTSTANDING DEBT RISK COMMERCIAL BANKS SHARE LOAN PORTFOLIOS COLLATERAL BALANCE SHEETS CREDIT QUALITY FINANCIAL INFORMATION LOAN SIZE FINANCIAL MARKETS DEFAULT RATE BANKING BANK SUPERVISION REVENUE PROFIT OUTSTANDING AMOUNT BORROWING LENDING CHECK GOVERNMENT LENDING MATURITIES PUBLIC BANKS PUBLIC SPENDING LIABILITIES GOVERNMENTS ARREARS BANK SIZE GUARANTEE ECONOMIC CONDITIONS FOREIGN BANK LENDING INSTITUTIONS CREDIT MARKET LOAN DATA DEBT MATURITY |
spellingShingle |
EMPLOYMENT MONETARY POLICY BORROWER BASIS POINTS INTEREST INCOME GOVERNMENT BANK INDIVIDUAL LOANS CHECKS ACCOUNTING INTEREST RATE SPREAD SMALL BANKS BANKING INDUSTRY INFORMATION SYSTEM LOAN PERFORMANCE INTEREST LAWS DUMMY VARIABLES LOAN MARKET CREDIT AVAILABILITY PRIVATIZATION INDUSTRY INTEREST RATE EXCHANGE STRATEGIES RESOURCE ALLOCATION LIQUIDITY SERVICES DEVELOPING COUNTRIES DEBTOR GOVERNMENT BORROWING PUBLIC SERVICES POLITICAL ECONOMY DEFAULT PROBABILITY HOUSING REVENUES POSITIVE COEFFICIENT MORTGAGE LOAN SPREADS LOAN ASYMMETRIC INFORMATION BUDGET CONSTRAINTS RENEGOTIATION PROJECTS PROBABILITY OF DEFAULT BORROWERS TAX NON-PERFORMING LOANS TREATIES DUMMY VARIABLE SAVING RESERVE BANKRUPTCY LOAN CONTRACT BENEFICIARIES INTERNATIONAL BANK SOFT BUDGET CONSTRAINTS LENDER INSTRUMENTS BUDGET BANK LENDING TERMS OF CREDIT MATURITY SMALL BUSINESS CAPITAL ALLOCATION SAVINGS CREDIT WORTHINESS COLLATERAL REQUIREMENT TELECOMMUNICATIONS MORAL HAZARD COMMERCIAL BANK BANK PRIVATIZATION TRANSPORT CONSUMER CREDIT FINANCIAL STUDIES PORTFOLIOS DEBTS CONTRACTS FINANCES PRIVATE BANKS TRADING PRODUCTIVITY OPTIONS LENDING DECISIONS EMERGING MARKET DOMESTIC BANKS MARKETS DEBT RETURN LEGISLATION LOAN MATURITY BUSINESS CYCLE GOVERNMENT BORROWINGS BANK LIQUIDITY INTERNATIONAL ECONOMICS BASIS POINT SOFT BUDGET CONSTRAINT LOANS LABOR PUBLIC SECTOR BANKS INVESTMENT OPPORTUNITIES ENTERPRISES SMALL BORROWERS FINANCE LOAN TERMS TAXES BANKING SECTOR BANK BALANCE SHEET BAILOUT BANKS TRANSACTIONS MACROECONOMIC ENVIRONMENT BUDGET CONSTRAINT FEDERAL RESERVE GOOD ACCOUNTABILITY BAD DEBTS COMMERCIAL CREDIT OWNERSHIP STRUCTURE MARKET FAILURES ACCESS TO CAPITAL FINANCIAL CRISIS LOAN QUANTITIES FUTURE VALUE SUPPLY OF CREDIT SMALL BUSINESS LENDING GOVERNMENT BANKS DEFAULT RATES BANK RETURNS CREDIT CONTRACT REGULATORY REPORTS FOREIGN BANKS COMMERCIAL LOANS SHARES LOAN SPREAD BALANCE SHEET MARKET DEFAULT LOAN DEMAND INSIDER TRADING ECONOMICS SECURITIES TREASURY LENDING DECISION GOVERNANCE SHAREHOLDERS BUSINESS CYCLES TAXATION ECONOMIC DEVELOPMENT CORPORATE DEBT PUBLIC SAVING BANK LOANS FINANCIAL MARKET LOAN VOLUME INVESTMENT OUTSTANDING DEBT RISK COMMERCIAL BANKS SHARE LOAN PORTFOLIOS COLLATERAL BALANCE SHEETS CREDIT QUALITY FINANCIAL INFORMATION LOAN SIZE FINANCIAL MARKETS DEFAULT RATE BANKING BANK SUPERVISION REVENUE PROFIT OUTSTANDING AMOUNT BORROWING LENDING CHECK GOVERNMENT LENDING MATURITIES PUBLIC BANKS PUBLIC SPENDING LIABILITIES GOVERNMENTS ARREARS BANK SIZE GUARANTEE ECONOMIC CONDITIONS FOREIGN BANK LENDING INSTITUTIONS CREDIT MARKET LOAN DATA DEBT MATURITY Agarwal, Sumit Morais, Bernardo Ruiz, Claudia Zhang, Jian The Political Economy of Bank Lending : Evidence from an Emerging Market |
geographic_facet |
Latin America & Caribbean Mexico |
relation |
Policy Research Working Paper;No. 7577 |
description |
This study investigates the existence of
political rents in bank lending, using a comprehensive
loan-level data set of the universe of commercial loans in
Mexico from 2003 to 2012. Identification relies on changes
in the state of origin of a senate committee chairman as a
source of exogenous variation in firms' political
relationship. The study finds that banks offer favorable
loan terms to politically connected firms with larger loan
quantities, lower loan spreads, longer maturities, and lower
collateral requirements. Furthermore, political loans
exhibit higher default rates. To isolate the bank supply
channel, a rich set of fixed-effects is included with
various specifications. The favorable lending increases with
the strength of a firm's political connection, varies
gradually along the political cycle, and is mainly offered
by large and domestic banks. Consistent with the quid pro
quo hypothesis, the study finds that banks that extend
political loans receive significantly more government
borrowings with better credit quality. The study also shows
that the greater credit supply due to political connection
leads to a large and significant increase in firm-level
employment and assets. The study provides estimates of the
total social cost of political lending and net revenue for
banks that are engaged in rent provision activity. Finally,
a series of robustness tests are performed to rule out
alternative mechanisms and explanations. |
format |
Working Paper |
author |
Agarwal, Sumit Morais, Bernardo Ruiz, Claudia Zhang, Jian |
author_facet |
Agarwal, Sumit Morais, Bernardo Ruiz, Claudia Zhang, Jian |
author_sort |
Agarwal, Sumit |
title |
The Political Economy of Bank Lending : Evidence from an Emerging Market |
title_short |
The Political Economy of Bank Lending : Evidence from an Emerging Market |
title_full |
The Political Economy of Bank Lending : Evidence from an Emerging Market |
title_fullStr |
The Political Economy of Bank Lending : Evidence from an Emerging Market |
title_full_unstemmed |
The Political Economy of Bank Lending : Evidence from an Emerging Market |
title_sort |
political economy of bank lending : evidence from an emerging market |
publisher |
World Bank, Washington, DC |
publishDate |
2016 |
url |
http://documents.worldbank.org/curated/en/2016/02/25970617/political-economy-bank-lending-evidence-emerging-market http://hdl.handle.net/10986/23915 |
_version_ |
1764455113139683328 |
spelling |
okr-10986-239152021-04-23T14:04:18Z The Political Economy of Bank Lending : Evidence from an Emerging Market Agarwal, Sumit Morais, Bernardo Ruiz, Claudia Zhang, Jian EMPLOYMENT MONETARY POLICY BORROWER BASIS POINTS INTEREST INCOME GOVERNMENT BANK INDIVIDUAL LOANS CHECKS ACCOUNTING INTEREST RATE SPREAD SMALL BANKS BANKING INDUSTRY INFORMATION SYSTEM LOAN PERFORMANCE INTEREST LAWS DUMMY VARIABLES LOAN MARKET CREDIT AVAILABILITY PRIVATIZATION INDUSTRY INTEREST RATE EXCHANGE STRATEGIES RESOURCE ALLOCATION LIQUIDITY SERVICES DEVELOPING COUNTRIES DEBTOR GOVERNMENT BORROWING PUBLIC SERVICES POLITICAL ECONOMY DEFAULT PROBABILITY HOUSING REVENUES POSITIVE COEFFICIENT MORTGAGE LOAN SPREADS LOAN ASYMMETRIC INFORMATION BUDGET CONSTRAINTS RENEGOTIATION PROJECTS PROBABILITY OF DEFAULT BORROWERS TAX NON-PERFORMING LOANS TREATIES DUMMY VARIABLE SAVING RESERVE BANKRUPTCY LOAN CONTRACT BENEFICIARIES INTERNATIONAL BANK SOFT BUDGET CONSTRAINTS LENDER INSTRUMENTS BUDGET BANK LENDING TERMS OF CREDIT MATURITY SMALL BUSINESS CAPITAL ALLOCATION SAVINGS CREDIT WORTHINESS COLLATERAL REQUIREMENT TELECOMMUNICATIONS MORAL HAZARD COMMERCIAL BANK BANK PRIVATIZATION TRANSPORT CONSUMER CREDIT FINANCIAL STUDIES PORTFOLIOS DEBTS CONTRACTS FINANCES PRIVATE BANKS TRADING PRODUCTIVITY OPTIONS LENDING DECISIONS EMERGING MARKET DOMESTIC BANKS MARKETS DEBT RETURN LEGISLATION LOAN MATURITY BUSINESS CYCLE GOVERNMENT BORROWINGS BANK LIQUIDITY INTERNATIONAL ECONOMICS BASIS POINT SOFT BUDGET CONSTRAINT LOANS LABOR PUBLIC SECTOR BANKS INVESTMENT OPPORTUNITIES ENTERPRISES SMALL BORROWERS FINANCE LOAN TERMS TAXES BANKING SECTOR BANK BALANCE SHEET BAILOUT BANKS TRANSACTIONS MACROECONOMIC ENVIRONMENT BUDGET CONSTRAINT FEDERAL RESERVE GOOD ACCOUNTABILITY BAD DEBTS COMMERCIAL CREDIT OWNERSHIP STRUCTURE MARKET FAILURES ACCESS TO CAPITAL FINANCIAL CRISIS LOAN QUANTITIES FUTURE VALUE SUPPLY OF CREDIT SMALL BUSINESS LENDING GOVERNMENT BANKS DEFAULT RATES BANK RETURNS CREDIT CONTRACT REGULATORY REPORTS FOREIGN BANKS COMMERCIAL LOANS SHARES LOAN SPREAD BALANCE SHEET MARKET DEFAULT LOAN DEMAND INSIDER TRADING ECONOMICS SECURITIES TREASURY LENDING DECISION GOVERNANCE SHAREHOLDERS BUSINESS CYCLES TAXATION ECONOMIC DEVELOPMENT CORPORATE DEBT PUBLIC SAVING BANK LOANS FINANCIAL MARKET LOAN VOLUME INVESTMENT OUTSTANDING DEBT RISK COMMERCIAL BANKS SHARE LOAN PORTFOLIOS COLLATERAL BALANCE SHEETS CREDIT QUALITY FINANCIAL INFORMATION LOAN SIZE FINANCIAL MARKETS DEFAULT RATE BANKING BANK SUPERVISION REVENUE PROFIT OUTSTANDING AMOUNT BORROWING LENDING CHECK GOVERNMENT LENDING MATURITIES PUBLIC BANKS PUBLIC SPENDING LIABILITIES GOVERNMENTS ARREARS BANK SIZE GUARANTEE ECONOMIC CONDITIONS FOREIGN BANK LENDING INSTITUTIONS CREDIT MARKET LOAN DATA DEBT MATURITY This study investigates the existence of political rents in bank lending, using a comprehensive loan-level data set of the universe of commercial loans in Mexico from 2003 to 2012. Identification relies on changes in the state of origin of a senate committee chairman as a source of exogenous variation in firms' political relationship. The study finds that banks offer favorable loan terms to politically connected firms with larger loan quantities, lower loan spreads, longer maturities, and lower collateral requirements. Furthermore, political loans exhibit higher default rates. To isolate the bank supply channel, a rich set of fixed-effects is included with various specifications. The favorable lending increases with the strength of a firm's political connection, varies gradually along the political cycle, and is mainly offered by large and domestic banks. Consistent with the quid pro quo hypothesis, the study finds that banks that extend political loans receive significantly more government borrowings with better credit quality. The study also shows that the greater credit supply due to political connection leads to a large and significant increase in firm-level employment and assets. The study provides estimates of the total social cost of political lending and net revenue for banks that are engaged in rent provision activity. Finally, a series of robustness tests are performed to rule out alternative mechanisms and explanations. 2016-03-09T22:15:42Z 2016-03-09T22:15:42Z 2016-02 Working Paper http://documents.worldbank.org/curated/en/2016/02/25970617/political-economy-bank-lending-evidence-emerging-market http://hdl.handle.net/10986/23915 English en_US Policy Research Working Paper;No. 7577 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Mexico |