Banks, Political Capital, and Growth

Abstract We show that politically connected banks influence economic activity. exploit shocks to individual banks’ political capital following close U.S. congressional elections. find regional output growth increases when active in the region experience an average positive shock their capital. The effect is economically large, but temporary, and due lower restructuring economy, not increased productivity. eased lending conditions (especially for riskier firms) can account effect. Our analysis a first attempt directly link politics finance literature with literature. (JEL, D72, E65, G21, G28, O43, O51). Received July 5, 2021; editorial decision January 7, 2022 by Editor Isil Erel. Authors have furnished Internet Appendix, which available on Oxford University Press Web site next final published paper online.