Does it help to have friends in high places? Bank stock performance and congressional committee chairmanships

► Powerful political connections and bank stock returns are positively correlated. ► Banks headquartered in states home to banking committee chairs exhibit higher returns. ► The bank chair effect is stronger if the chairs are aligned with other politicians. ► The bank chair effect is stronger if the chairs are more experienced. ► The bank chair effect is stronger if banks are clustered in the home state. Does a politician with power in the U.S. Congress positively affect the value of firms headquartered in their home state? We investigate this question by examining the profitability and stock performance of commercial banks. Banks can be enormously influenced by the political and regulatory environment. We find that banks headquartered in states where a Senator or member of the House of Representatives serves as the chairman on their respective banking committee in Congress outperform banks headquartered in other states. In addition, we find that this “chair effect” is more pronounced when the committee chairs are strongly aligned with other politicians in Congress, when they are more experienced, and when banks are clustered in the home state, suggesting that the potential benefits generated from chairmanship are in more demand. Overall, our results suggest that there are some important value implications of a local politician’s power in Congress.