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Private banking and crony capitalism in Egypt

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  • Diwan, Ishac
  • Schiffbauer, Marc

Abstract

Why do private banks lend preferentially to politically connected firms? Focusing on the case of Egypt during the later years of Mubarak's rule, we identified politically connected firms, and we documented, using the Orbis corporate data on large firms in Egypt, that they received a disproportionate amount of the loans going to the private sector during 2003–11. We then investigated the determinants of their borrowings, and we found evidence that connected firms were more attractive to banks both because they made larger profits, and because they were seen to be implicitly guaranteed by the state against failure. We also found evidence that non-connected firms had a lower demand for loans.

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  • Diwan, Ishac & Schiffbauer, Marc, 2018. "Private banking and crony capitalism in Egypt," Business and Politics, Cambridge University Press, vol. 20(3), pages 390-409, September.
    • Handle: RePEc:cup:buspol:v:20:y:2018:i:03:p:390-409_00
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    References listed on IDEAS

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    2. Mohamed Chaffai & M. Kabir Hassan, 2019. "Technology Gap and Managerial Efficiency: A Comparison between Islamic and Conventional Banks in MENA," Journal of Productivity Analysis, Springer, vol. 51(1), pages 39-53, February.
    3. Nugent, Jeffrey B., 2023. "A new institutional perspective on business associations: Filling a gap between firms and states in the dynamic analysis of Richard Day," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 49-59.
    4. Rihem Braham & Christian Peretti & Lotfi Belkacem, 2019. "Do political connections affect bank leverage? Evidence from some Middle Eastern and North African countries," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(4), pages 989-1006, December.
    5. Aboushady, Nora & Zaki, Chahir, 2023. "Are global value chains for sale? On business-state relations in the MENA region," IDOS Discussion Papers 17/2023, German Institute of Development and Sustainability (IDOS).
    6. Rihem Braham & Christian Peretti & Lotfi Belkacem, 2022. "On the Measurement and Extent of Banks’ Political Connection in the Middle East and North Africa Region," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(4), pages 606-645, December.
    7. Braham, Rihem & de Peretti, Christian & Belkacem, Lotfi, 2020. "The role of political patronage in the risk-taking behaviour of banks in the Middle East and North Africa," Research in International Business and Finance, Elsevier, vol. 53(C).

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