loans made to firms by every bank in Mexico.<sup>20</sup> All business loans, regardless of their size, have to be reported.<sup>21</sup> For each loan in the CNBV data set, we have information on the issuing bank, the borrower (firm), the outstanding amount, the annualized-loan spread, and the start and end date of the loan (maturity). There is information regarding each borrower, such as its identifier, location, industry and number of employees. Since loans are tracked every month, we are able to see their evolution until their maturity. Specifically, we can observe whether the debtor obligation is being fulfilled, and in case it is not, by how much and for how long the loan has been under-performing.<sup>22</sup> The final sample covers three legislatures LIX-LXI from October 2003 to March 2012.<sup>23</sup> For each loan, we keep the information at the initial period when the loan was extended. However, we also record whether the loan is more than 90 days in arrears within the 36 months after origination. Some borrowers had more than one loan outstanding with the same bank in one quarter. Therefore we adopt a similar approach as in La Porta et al. (2003) and aggregate individual loans at the firmbank-quarter level and report loan characteristics such as loan spread and maturity at origination using a weighted average by loan volume. The only exception is loan volume, which is the sum of the value of all new loans that a firm initiated from a certain bank in a given quarter. Our final data set contains 594,534 loans from 88,117 firms from 21 banks.

During the first month of each legislative session, committees are formed with one senator appointed as chairman. For each borrower and quarter, we define the dummy variable _chairman_ that equals one if the borrower is headquartered in a state with at least one senator serving as the chairman in that quarter and zero otherwise.

# **_III_ .B. Empirical Strategy**

We now discuss the methodology used to analyze whether banks offered better loans to firms in a state with a relevant chairman, and whether these loans are more likely to eventually default in the future. We focus on four credit margins: loan size (in logs), price of the loan (interest rate spread), original maturity (in months) and a dummy on the existence of collateral.<sup>24</sup> We also examine the loan's ex-post performance by creating an indicator variable of whether loans were more than 90 days in arrears. Appendix A presents the detailed definitions of each variable.

> 20 To ensure the homogeneity of the data, we exclude sole proprietorships from the sample because consumption credit can be confused for commercial credit.

> 21 Many loan-level credit registry data sets are truncated from below. For example, the threshold is 1.5 million euro in Germany and 41,300 euros in Italy (Sapienza, 2004), which suggests that small and medium firms may be excluded in those credit registries.

> 22 Therefore, we are able to calculate the recovery rate of defaulting loans.

> 23 Legislative session LIX started in September of 2003, while LX and LXI started in September of 2006 and September of 2009 respectively.

> 24 We calculate the interest rate spread as the difference between the loan interest rate charged and the annual cost of funds reported monthly by commercial banks to the Bank of Mexico.

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