Elections Hinder Firms’ Access to Credit

We investigate whether the occurrence of elections affect access to credit for firms. We perform an investigation using firm-level data covering 44 developed and developing countries. We find that elections have a detrimental influence on access to credit: firms are more credit-constrained in election years but also in pre-election years. We explain this finding by the fact that elections exacerbate political uncertainty. The negative effect of elections takes place through lower credit demand, whereas the occurrence of elections does not affect credit supply. We further establish that the design of political and financial systems affects how elections influence access to credit.

Léon F., Weill L. (2021) Elections Hinder Firms’ Access to Credit, Ferdi Document de travail P297 (also Working paper LaRGE, Université de Strasbourg).