Politically Influenced Bank Lending

56 Pages Posted: 22 Aug 2019 Last revised: 24 Jun 2022

Date Written: June 24, 2022

Abstract

Borroers from the same state as the Chairman of the US Senate Banking Committee ("connected borrowers") are able to borrow at spreads 14 bps lower than other borrowers. Connected borrowers’ contributions toward the Chairman are influenced by their cost of loans, but the same is not true for nonconnected borrowers. Findings suggest the Chairman is incentivized by re-election to help connected borrowers obtain cheaper loans. Banks that provide connected loans enjoy regulatory relief in the form of fewer future investigations. Results are largely consistent with the existence of quid pro quo re- lationships between firms, banks, and politicians.

Keywords: political connection, campaign contribution, bank loan, cost of borrowing

JEL Classification: D7, G21, G3

Suggested Citation

Zhou, Yifan, Politically Influenced Bank Lending (June 24, 2022). Available at SSRN: https://ssrn.com/abstract=3439283 or http://dx.doi.org/10.2139/ssrn.3439283

Yifan Zhou (Contact Author)

FISF, Fudan University ( email )

220 Handan Road
Yangpu District
Shanghai, 200051
China

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