DP3168 What Do State-Owned Firms Maximize? Evidence from the Italian Banks

Author(s):	Paola Sapienza
Publication Date:	January 2002
Keyword(s):	government, ownership
JEL(s):	G10, H11, L32
Programme Areas:	Public Economics, Financial Economics, Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=3168

This Paper studies the objective function of state-owned banks. 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 favour firms located in depressed areas and large firms. The lending behaviour 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.