Political patronage and banks’ leverage in the Middle Eastern and North African region: A new neural panel regression analysis

• Published in: The Quarterly review of economics and finance Vol. 89; pp. 298 - 306
• Main Authors: Braham, Rihem, de Peretti, Christian, Belkacem, Lotfi
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.06.2023
• Subjects: MENA region; Neural panel regression; Non-linear; Political patronage; Non-linear; MENA region; G38; Political patronage; G32; Neural panel regression
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2022.08.011

This research examines the effect of political patronage on financing decisions for a sample of 67 commercial banks from the Middle Eastern and North African region for the period 2003–2017. For this purpose, a fixed-effects neural panel model was developed to investigate this relationship, which has not been done in previous research. In contrast to classical panel regression, our model allows for the detection of all possible combinations among the variables. Although scant evidence on a direct impact of the political connection exists, the results reveal that the effect of political patronage on leverage is non-linear through its interaction with bank profitability and efficiency. The non-linear effect is also related to the political and institutional environments. •Political connections are common and prevalent to firms in emerging markets.•We explore hand-collected data on politically-patronised banks in the Middle East and North Africa MENA region.•The extent to which political patronage affects banks depends on types of political connection.•Our new neural panel regression allows detecting indirect effects of political connections on bank leverage.