Laurent Weill (University of Strasbourg) - Regional Favoritism in Access to Credit: Just Believe in It

BOFIT-seminaarit

Laurent Weill (University of Strasbourg) - Regional Favoritism in Access to Credit: Just Believe in It

Co-author: Francis Osei-Tutu (University of Strasbourg)

Abstract
We examine the effect of regional favoritism on firms’ access to credit. Using firm-level data on a large sample of 29,000 firms covering 48 countries, we investigate the hypothesis that access to credit of firms is higher in the birth regions of national political leaders. We find evidence that firms located in birth regions of the political leaders are less likely to be credit constrained. This effect takes place through the demand channel: firms in leader regions are less discouraged from applying for loans. We do not find evidence of preferential lending from banks to firms in leader regions.

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