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Journal of Finance Vol. 69 No. 2 2014

The Real Effects of Government‐Owned Banks: Evidence from an Emerging Market

Daniel Carvalho

Carvalho is at Marshall School of Business, University of Southern California. I am indebted to my advisors Jeremy Stein, Andrei Shleifer, Michael Kremer, and Gary Chamberlain for numerous discussions. I would like also to acknowledge helpful comments from Alberto Alesina, Effi Benmelech, Shawn Cole

Abstract

Using plant‐level data for Brazilian manufacturing firms, this paper provides evidence that government control over banks leads to significant political influence over the real decisions of firms. I find that firms eligible for government bank lending expand employment in politically attractive regions near elections. These expansions are associated with additional (favorable) borrowing from government banks. Further, these persistent expansions take place just before competitive elections, and are associated with lower future employment growth by firms in other regions. The analysis suggests that politicians in Brazil use bank lending to shift employment towards politically attractive regions and away from unattractive regions.

DOI
10.1111/jofi.12130
Volume
69
Issue
2
Pages
577-609
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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