Political Lending

45 Pages Posted: 5 Aug 2016 Last revised: 23 Aug 2016

See all articles by Ahmed Tahoun

Ahmed Tahoun

London Business School

Florin P. Vasvari

London Business School

Date Written: August 23, 2016

Abstract

Using a unique dataset provided by the Center for Responsive Politics (CRP), we document a direct channel through which financial institutions contribute to the net worth of members of the U.S. Congress, particularly those sitting on the finance committees in the Senate and the House of Representatives. These individuals report greater levels of leverage and new liabilities as a proportion of their total net worth, relative to when they are not part of the finance committee or relative to other congressional members. Politicians increase new liabilities by over 30% of their net worth in the first year of their finance committee membership. We do not find similar patterns for members of non-finance powerful committees. We find no evidence that finance committee members arrange new personal liabilities ahead of their appointments to the committees. Finance committee members also report liabilities with lower interest rates and longer maturities. Finally, focusing on banks that lend to U.S. Congress members, we find that the weaker performing financial institutions lend to more finance committee members and provide more new debt to these politicians. Our findings suggest that lenders may create political connections with finance committee members in an attempt to obtain regulatory benefits.

Keywords: U.S. Congress members, Finance Committee, Personal Debt, Information disclosure

JEL Classification: D71, D72, G11, G21, G38, P16.

Suggested Citation

Tahoun, Ahmed and Vasvari, Florin P., Political Lending (August 23, 2016). Institute for New Economic Thinking Working Paper Series No. 47. Available at SSRN: https://ssrn.com/abstract=2817703 or http://dx.doi.org/10.2139/ssrn.2817703

Ahmed Tahoun (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Florin P. Vasvari

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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