Abstract:We provide empirical evidence that campaign contributions are strongly associated with market expectations of future firm-specific political favors, including preferential access to external finance. Using a novel dataset, we find that Brazilian firms providing more contributions in the 1998 campaign to (elected) federal deputies experienced higher stock returns following the election, even after controlling for industry-specific effects and firm-specific characteristics. This suggests that federal deputies were expected to shape policy and actions to benefit particular firms. Consistent with such political favors, we find that these firms substantially increased their financial leverage relative to a control group in the four years following election, especially from banks, suggesting that contributions gained firms preferential access to finance. JEL Classifications: D7, G1, G2, G3, and P48.
We show that financial sector development significantly reduces undernourishment (hunger). We find evidence of specific financial sector development channels, including increased access to productivity enhancing equipment⎯fertilizer and tractor use⎯translating into higher agricultural productivity and cereal yields, with accompanying beneficial income and general quantity and price effects. Results are robust to various specifications and econometric tests, including both cross-country and panel regressions, and using various control variables. They are economically large and imply that a 1 percent increase in private credit to GDP reduces undernourishment by 0.22-2.45 percent, or about one-quarter of the impact of GDP per capita on undernourishment.
published to communicate the results of the Bank's work to the development community with the least possible delay. The manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally-edited texts. Some sources cited in this paper may be informal documents that are not readily available.The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, or those of the Executive Directors of The World Bank or the governments they represent.The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank of the legal status of any territory or the endorsement or acceptance of such boundaries.The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission promptly to reproduce portions of the work.
This paper tests the hypothesis that during systemic banking crises, access to finance is opportunistically tightened by incumbents to eliminate or weaken competition from mainly young firms. We find this to be especially true in more corrupt countries. To do so, we employ a methodology similar to Rajan and Zingales (1998) on three digit manufacturing industry-level data provided by the United Nations Statistics Division for about 15 developed and developing countries in over 20 industries on average. We show that price-cost margins in externally more financially dependent industries are higher during crisis than in externally less dependent industries in countries with higher levels of corruption. We find the opposite relationship for the change in the industry-level number of establishments during a crisis. The results withstand an array of robustness checks, including using different indices of corruption, different controls, and robust estimation techniques.JEL Classifications: D73, G1, G2, G3, and P48.Keywords: Access to Finance; Systemic Banking Crises; Corruption. World Bank Policy Research Working Paper 3660, July 2005 The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper WPS36602 This paper studies the effect of corruption on access to finance and its impact in times of systemic banking crises on the real sector. It asks the basic question: do incumbents try to curtail access to external finance for their competitors during systemic banking crises? Indeed, the paper empirically identifies access to finance as a likely candidate which incumbents may manipulate to "starve" their weaker competitors from credit during a crisis to safeguard their own rents. Hence this paper adds to the relatively small body of empirical literature on mechanisms through which access to finance affects real activity during financial crises. More specifically, it identifies an explicit "political economy of finance" channel through which special interests distort the level-playing field during crises. Furthermore, to the extent that the politics of incumbent rents affect the economic growth trajectory of a country, the results support the findings of the finance and growth literature and reconfirm the large literature which attests to the first order importance of institutions on economic development.The basic idea originates from the theoretical model in Feijen and Perotti (2005) where rich entrepreneurs lobby politicians to restrict access to finance for poor entrepreneurs in bad economic times. It builds a model where all agents have identical, positive net present value projects and are all subject to an economy-wide exogenous shock with a certain probability....
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