Bailouts and Political Connections of Bank Boards
By Pia Huettl | Posted on 17 January 2022
Post type: Paper
This paper investigates the political ties of too-big-to-fail bank boards in crisis times. We argue that after a bailout, governments are likely to influence bank board compositions to secure control rights. Combining two novel datasets on political ties of banks and state aid in the European Union, we find that the number of politically connected board members increases by 21.4% following government support. Bailed-out banks with such new political ties perform better in terms of market capitalisation and valuation than bailed-out banks without such ties. This evidence suggests a role of political board members in providing valuable information during crisis times.
Co-Author(s): Philipp Schaz