We document a strong political cycle in bank credit and industry outcomes in Turkey.
In line with theories of tactical redistribution, state-owned banks systematically adjust
their lending around local elections compared with private banks in the same province
based on electoral competition and political alignment of incumbent mayors. This
effect only exists in corporate lending as opposed to consumer loans. It creates credit
constraints for firms in opposition areas, which suffer drops in employment and sales
but not firm entry. There is substantial misallocation of financial resources as
provinces and industries with high initial efficiency suffer the greatest constraints