Banks, Political Capital, and Growth

Wolf Wagner, Thomas Lambert and Eden Quxian Zhang

No 15612, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that politically connected banks influence economic activity. We exploit shocks to individual banks’ political capital following close US 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 rather than 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.

Keywords: Campaign contributions; Close elections; Corporate lending; Creative destruction; Economic growth; Political connections; Productivity (search for similar items in EconPapers)
JEL-codes: D72 E65 G18 G21 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-pol
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