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The Relationship between Corporate Political Donations and Government-Controlled Banks’ Loan Rates:
Evidence from Presidential Elections of Taiwan

unobservable information, this study identifies two inverse Mills ratios, IMR_DO and
regresses the political donations (DO) or firms’ donations to the candidate who wins
regresses the political donations (DO) or firms’ donations to the candidate who wins
IMR_SL. Meanwhile, in the second stage, this study regresses the political donations (DO)
the presidential elections (DOWIN) on the loan rate spread of government-controlled
the presidential elections (DOWIN) on the loan rate spread of government-controlled
or firms’ donations to the candidate who wins the presidential elections (DOWIN) on the
banks (RATE_SPREAD), including the inverse Mills ratio estimated by an OLS
banks (RATE_SPREAD), including the inverse Mills ratio estimated by an OLS
loan rate spread of government-controlled banks (RATE_SPREAD), including the inverse
regression from the first stage.
regression from the first stage.

Mills ratio estimated by an OLS regression from the first stage.

First stage:
First stage:
Model 1: Determinants of corporate political donations (logistic regression)
First stage:
Model 1: Determinants of corporate political donations (logistic regression)
Model 1: Determinants of corporate political donations (logistic regression)

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Model 2: Determinants of corporate long-term versus short-term bank loans (ordered
Model 2: Determinants of corporate long-term versus short-term bank loans (ordered
Model 2: Determinants of corporate long-term versus short-term bank loans (ordered
logistic regression)
logistic regression)
logistic regression)

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Second Stage:

Second Stage:
To examine the effect of making corporate political donations during presidential
Second Stage:
To examine the effect of making corporate political donations during presidential
elections on the loan interest rate spread at government-controlled banks, this study uses
To examine the effect of making corporate political donations during presidential
elections on the loan interest rate spread at government-controlled banks, this study
two indicators as a stand-in for independent variables: (1) DO: an indicator that equals one
elections on the loan interest rate spread at government-controlled banks, this study
uses two indicators as a stand-in for independent variables: (1) DO: an indicator that
when firms make political donations during presidential elections and zero otherwise; and
uses two indicators as a stand-in for independent variables: (1) DO: an indicator that
equals one when firms make political donations during presidential elections and zero
(2) DOWIN: an indicator that equals one when firms donate to the presidential candidate
equals one when firms make political donations during presidential elections and zero
otherwise; and (2) DOWIN: an indicator that equals one when firms donate to the
who wins and zero otherwise. The government-controlled banks' loan rate spread (RATE_
otherwise; and (2) DOWIN: an indicator that equals one when firms donate to the
presidential candidate who wins and zero otherwise. The government-controlled banks'
presidential candidate who wins and zero otherwise. The government-controlled banks'
loan rate spread (RATE_SPREAD) is a dependent variable representing the difference
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loan rate spread (RATE_SPREAD) is a dependent variable representing the difference
between government-controlled banks' loans and risk-free interest rates.
between government-controlled banks' loans and risk-free interest rates.

1. The effect of corporate political donations on government-controlled bank loan rate
1. The effect of corporate political donations on government-controlled bank loan rate
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