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What Do State-Owned Firms Maximize? Evidence from the Italian Banks

  • Sapienza, Paola

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3168.

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Date of creation: Jan 2002
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Handle: RePEc:cpr:ceprdp:3168
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