No abstract

Using plant‐level data for Brazilian manufacturing firms, this paper provides evidence that government control over banks leads to significant political influence over the real decisions of firms. I find that firms eligible for government bank lending expand employment in politically attractive regions near elections. These expansions are associated with additional (favorable) borrowing from government banks. Further, these persistent expansions take place just before competitive elections, and are associated with lower future employment growth by firms in other regions. The analysis suggests that politicians in Brazil use bank lending to shift employment towards politically attractive regions and away from unattractive regions.

We provide evidence that the deregulation of U.S. state banking markets leads to a significant increase in the relative employment and capital growth of local firms with higher productivity, and that this effect is concentrated among young firms. Using financial data for a broad range of firms, our analysis suggests that this effect is driven by a shift in the composition of local bank credit supply toward more productive firms. We estimate that this effect translates into economically important gains in aggregate industry productivity and that changes in the allocation of labor play a central role in driving these gains.

We study the transmission of bank distress to nonfinancial firms from 34 countries during the 2007-2009 financial crisis using systemic and bank-specific shocks. We find that bank distress is associated with equity valuation losses and investment cuts to borrower firms with the strongest lending relationships with banks. The losses are not offset by borrowers' access to public debt markets and are concentrated in firms with the greatest information asymmetry problems and weakest financial positions. Our findings suggest that public debt markets do not mitigate the effects of relationship bank distress during financial crises.

Louis (Olin) for helpful comments. John (Jianqiu) Bai is from Northeastern University, Carvalho is from Indiana University, and Phillips is from Tuck School of Business at Dartmouth College. All of the authors have read the Journal of Finance's disclosure policy and have no conflicts of interest to disclose. Any opinions and conclusions expressed herein are those of the author(s) and do not necessarily represent the views of the U.S. Census Bureau or the National Bureau of Economic Research. All results have been reviewed to ensure that no confidential information is disclosed. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.