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Lending Cycles and Real Outcomes: Costs of Political Misalignment

Author

Listed:
  • Çağatay Bircan
  • Orkun Saka

Abstract

We document a strong political cycle in bank credit and industry outcomes in Turkey. In line with theories of tactical redistribution, state-owned banks systematically adjust their lending around local elections compared with private banks in the same province based on electoral competition and political alignment of incumbent mayors. This effect only exists in corporate lending and creates credit constraints for firms in opposition areas, which suffer drops in assets, employment and sales but not firm entry. Financial resources and factors of production are misallocated as more efficient provinces and industries suffer the greatest constraints, reducing aggregate productivity.

Suggested Citation

  • Çağatay Bircan & Orkun Saka, 2021. "Lending Cycles and Real Outcomes: Costs of Political Misalignment," The Economic Journal, Royal Economic Society, vol. 131(639), pages 2763-2796.
    • Handle: RePEc:oup:econjl:v:131:y:2021:i:639:p:2763-2796.
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    File URL: http://hdl.handle.net/10.1093/ej/ueab020
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    Cited by:

    1. Fungáčová, Zuzana & Kerola, Eeva & Weill, Laurent, 2024. "European banks are not immune to national elections," BOFIT Discussion Papers 4/2024, Bank of Finland Institute for Emerging Economies (BOFIT).
    2. De Grauwe, Paul & Saka, Orkun & Ji, Yuemei, 2020. "Financial Policymaking after Crises: Public vs. Private Interest," CEPR Discussion Papers 15413, C.E.P.R. Discussion Papers.
    3. Li, Xiang, 2022. "The role of state-owned banks in crises: Evidence from German banks during COVID-19," IWH Discussion Papers 6/2022, Halle Institute for Economic Research (IWH), revised 2022.
    4. Fungáčová, Zuzana & Schoors, Koen & Solanko, Laura & Weill, Laurent, 2023. "Staying on top: Political cycles in private bank lending," Journal of Comparative Economics, Elsevier, vol. 51(3), pages 899-917.
    5. Pinar Deniz & Burhan Can Karahasan & Mehmet Pinar, 2021. "Determinants of regional distribution of AKP votes: Analysis of post‐2002 parliamentary elections," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(2), pages 323-352, April.
    6. Jing, Zhongbo & Liu, Wei & Wang, Zexi & Wei, Lu & Zhang, Xuan, 2024. "Does local government debt regulation improve rural banks’ performance? Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    7. De Haas, Ralph & Guriev, Sergei & Stepanov, Alexander, 2025. "State ownership and corporate leverage around the world," Journal of Corporate Finance, Elsevier, vol. 93(C).
    8. Cem Oyvat & Hasan Tekgüç & Alper H. Yagci, 2025. "Pious people, patronage jobs, and the labor market: Turkey under Erdoğan’s AKP," Public Choice, Springer, vol. 203(3), pages 465-491, June.
    9. Lisa Ahsen Sezer & Gül Berna Özcan, 2024. "Local champions and change of governments: a longitudinal analysis of firms’ political ties in Gaziantep, Turkey," Journal of Economic Geography, Oxford University Press, vol. 24(2), pages 263-283.
    10. Ayberk, İdil & Önder, Zeynep, 2022. "House prices and bank loan portfolios in an emerging market: The role of bank ownership," Economic Modelling, Elsevier, vol. 106(C).
    11. Zareh Asatryan & Désirée I. Christofzik & Justus Nover, 2026. "Doubling Down Political Budget Cycles: The Role of State‐Owned Enterprises," Economics and Politics, Wiley Blackwell, vol. 38(1), pages 306-326, March.
    12. Chaoyi Chen & Mehmet Pinar & Thanasis Stengos, 2024. "Bribery, regulation and firm performance: evidence from a threshold model," Empirical Economics, Springer, vol. 66(1), pages 405-430, January.
    13. Thomas Lambert & Wolf Wagner & Eden Quxian Zhang, 2023. "Banks, Political Capital, and Growth," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 12(3), pages 613-655.
    14. Fungáčová, Zuzana & Solanko, Laura & Weill, Laurent, 2025. "Lending is a political issue in Russia," BOFIT Policy Briefs 12/2025, Bank of Finland Institute for Emerging Economies (BOFIT).
    15. De Haas, Ralph & Popov, Alexander & Mamonov, Mikhail & Shala, Iliriana, 2025. "Violent conflict and cross-border lending," Working Paper Series 3073, European Central Bank.
    16. Saka, Orkun & Ji, Yuemei & De Grauwe, Paul, 2021. "Financial policymaking after crises : Public vs. private interests," BOFIT Discussion Papers 10/2021, Bank of Finland, Institute for Economies in Transition.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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