Bank Influence at a Discount
In a general equilibrium framework, we show that banks may “buy” political influence at a discount: They offer disproportionately small campaign contributions compared to the influence they exert, thus generating abnormal returns. We distinguish between the direct effect of contributions which, as a...
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| Veröffentlicht in: | Journal of financial and quantitative analysis 2024-09, Vol.59 (6), p.2970-3000 |
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| container_title | Journal of financial and quantitative analysis |
| container_volume | 59 |
| creator | Gersbach, Hans Papageorgiou, Stylianos |
| description | In a general equilibrium framework, we show that banks may “buy” political influence at a discount: They offer disproportionately small campaign contributions compared to the influence they exert, thus generating abnormal returns. We distinguish between the direct effect of contributions which, as a cost, reduce bank returns, and the indirect effect of contributions which boost returns via inducing bank-favoring policies. Therefore, abnormal returns may or may not increase with the amount of contributions, depending on which effect dominates: Stricter capital requirements decrease contributions and abnormal returns. When politicians attach more weight to households’ welfare, contributions increase and abnormal returns decrease. |
| doi_str_mv | 10.1017/S0022109023000625 |
| format | Article |
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We distinguish between the direct effect of contributions which, as a cost, reduce bank returns, and the indirect effect of contributions which boost returns via inducing bank-favoring policies. Therefore, abnormal returns may or may not increase with the amount of contributions, depending on which effect dominates: Stricter capital requirements decrease contributions and abnormal returns. When politicians attach more weight to households’ welfare, contributions increase and abnormal returns decrease.</description><identifier>ISSN: 0022-1090</identifier><identifier>EISSN: 1756-6916</identifier><identifier>DOI: 10.1017/S0022109023000625</identifier><language>eng</language><publisher>New York, USA: Cambridge University Press</publisher><subject>Abnormal returns ; Bailouts ; Banking ; Banking industry ; Banks ; Campaign contributions ; Capital ; Equilibrium ; Households ; Political power ; Politicians ; Politics ; Return on equity ; Welfare</subject><ispartof>Journal of financial and quantitative analysis, 2024-09, Vol.59 (6), p.2970-3000</ispartof><rights>The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington</rights><rights>The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington. This work is licensed under the Creative Commons Attribution License This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited. (the “License”). 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Anal</addtitle><description>In a general equilibrium framework, we show that banks may “buy” political influence at a discount: They offer disproportionately small campaign contributions compared to the influence they exert, thus generating abnormal returns. We distinguish between the direct effect of contributions which, as a cost, reduce bank returns, and the indirect effect of contributions which boost returns via inducing bank-favoring policies. Therefore, abnormal returns may or may not increase with the amount of contributions, depending on which effect dominates: Stricter capital requirements decrease contributions and abnormal returns. 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| ispartof | Journal of financial and quantitative analysis, 2024-09, Vol.59 (6), p.2970-3000 |
| issn | 0022-1090 1756-6916 |
| language | eng |
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| source | Worldwide Political Science Abstracts; EBSCOhost Business Source Complete; Cambridge University Press Journals Complete |
| subjects | Abnormal returns Bailouts Banking Banking industry Banks Campaign contributions Capital Equilibrium Households Political power Politicians Politics Return on equity Welfare |
| title | Bank Influence at a Discount |
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