The Review of Corporate Finance Studies Vol. 12 No. 3 2023

Banks, Political Capital, and Growth

Thomas Lambert¹; Wolf Wagner²; Eden Quxian Zhang³

¹ Rotterdam School of Management Erasmus University · ² Rotterdam School of Management, Erasmus University and CEPR · ³ Monash Business School, Monash University ,

Abstract

We show that politically connected banks influence economic activity. We exploit shocks to individual banks’ political capital following close U.S. congressional elections. We find that regional output growth increases when banks active in the region experience an average positive shock to their political capital. The effect is economically large, but temporary, and is due to lower restructuring in the economy, not increased productivity. We show that eased lending conditions (especially for riskier firms) can account for the growth effect. Our analysis is a first attempt to directly link the politics and finance literature with the finance and growth literature. (JEL, D72, E65, G21, G28, O43, O51).

DOI

10.1093/rcfs/cfac005

Volume

12

Issue

3

Pages

613-655

Language

en

Sources

bibtex:phds-export.bib crossref openalex

Cite

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