The Effects of Government Ownership on Bank Lending, Journal of Financial Economics
This paper studies the effects of government ownership on bank lending behavior. 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 favor firms located in depressed areas and large firms. The lending behavior 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.
Sapienza, Paola. 2004. The Effects of Government Ownership on Bank Lending. Journal of Financial Economics. 72(2): 357-384.