Politically Influenced Bank Lending
56 Pages Posted: 22 Aug 2019 Last revised: 24 Jun 2022
Date Written: June 24, 2022
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: Suggested Citation