Working Paper: CEPR ID: DP3168
Authors: Paola Sapienza
Abstract: This Paper studies the objective function of state-owned banks. Using information on individual loan contracts, I compare the interest rate charged to two sets of companies with identical characteristics borrowing respectively from state-owned and privately owned banks. State-owned banks charge lower interest rates than do privately owned banks to similar or identical firms, even if the company is able to borrow more from privately owned banks. State-owned banks mostly favour firms located in depressed areas and large firms. The lending behaviour of state-owned banks is affected by the electoral results of the party affiliated with the bank: the stronger the political party in the area where the firm is borrowing, the lower the interest rates charged. This result is robust to including bank and firm fixed effects.
Keywords: government; ownership
JEL Codes: G10; H11; L32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank ownership (G21) | interest rates (E43) |
| political strength (P26) | interest rates (E43) |
| bank ownership (G21) | lending behavior (G21) |
| political affiliation (D72) | lending rates (G21) |
| firm size (L25) | interest rates (E43) |
| market concentration (L11) | interest rates (E43) |