Banks, political capital, and growth

Thomas Lambert, Wolf Wagner, Eden Quxian Zhang

Research output: Contribution to journalArticleResearchpeer-review

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.

Original languageEnglish
Pages (from-to)613-655
Number of pages43
JournalReview of Corporate Finance Studies
Volume12
Issue number3
DOIs
Publication statusPublished - Aug 2023

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