They Who Pay the Piper Call the Tune: Bailouts and Political Connections of Bank Boards.

57 Pages Posted: 14 Sep 2022

See all articles by Pia Hüttl

Pia Hüttl

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin

Date Written: August 24, 2022

Abstract

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

Hüttl, Pia, They Who Pay the Piper Call the Tune: Bailouts and Political Connections of Bank Boards. (August 24, 2022). Available at SSRN: https://ssrn.com/abstract=4199271 or http://dx.doi.org/10.2139/ssrn.4199271

Pia Hüttl (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

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