They Who Pay the Piper Call the Tune: Bailouts and Political Connections of Bank Boards.
57 Pages Posted: 14 Sep 2022
Date Written: August 24, 2022
This paper investigates the political ties of too-big-to-fail bank boards in crisis times. I argue that, after a bailout, governments are likely to influence bank board compositions in order to secure control rights. Combining two novel datasets on political ties of banks and state aid in the European Union, I find that the number of politically connected board members increases by 24\% following government support. Bailed-out banks with these new political ties perform better in terms of market capitalisation and valuation than bailed-out banks without these ties. This evidence suggests a role of political board members in providing valuable information during crisis times.
Keywords: Bank Bailouts, Political Connections, Banking Crises
JEL Classification: D72, G01, G21, G28
Suggested Citation: Suggested Citation