Banks, Political Capital, and Growth

50 Pages Posted: 27 Feb 2021 Last revised: 6 Jul 2021

See all articles by Thomas Lambert

Thomas Lambert

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Wolf Wagner

Erasmus University Rotterdam (EUR); Centre for Economic Policy Research (CEPR)

Eden Quxian Zhang

Monash University; Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: December 22, 2020

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

JEL Classification: D72, E65, G18, G21

Suggested Citation

Lambert, Thomas and Wagner, Wolf and Zhang, Eden Quxian, Banks, Political Capital, and Growth (December 22, 2020). Available at SSRN: https://ssrn.com/abstract=3753597 or http://dx.doi.org/10.2139/ssrn.3753597

Thomas Lambert (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.thomaslambert.org

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Wolf Wagner

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Eden Quxian Zhang

Monash University ( email )

900 Dandenong Rd
Caulfield East, Victoria 3145
Australia

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Rotterdam
Netherlands

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