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The rise of a network: Spillover of political patronage and cronyism to the private sector
Cited 6 time in
Web of Science
Cited 7 time in Scopus
- Authors
- Issue Date
- 2022-09
- Publisher
- ELSEVIER SCIENCE SA
- Citation
- JOURNAL OF FINANCIAL ECONOMICS, Vol.145 No.3, pp.970-1005
- Abstract
- We document that networks that gain access to political power and use it for patronage appointments also gain control over resource allocation in the private sector. Specifically, following a presidential election in Korea, the president appoints members of his network into important positions in government, and private banks respond by appointing execu-tives from the same network to establish links to the administration. Consequently, firms linked to the network obtain more credit at a lower rate from government and private banks alike, despite higher default rates. Micro-level data on loans and variation in net-work links for the same firm across lenders over time sharpen the interpretation of our results. In a parsimonious model, we show that efficiency costs are higher when govern-ment and private banks are controlled by the same group rather than different groups: in-group firms invest in more unprofitable projects, whereas out-group firms lack funding for highly profitable investments.(c) 2021 Elsevier B.V. All rights reserved.
- ISSN
- 0304-405X
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