The Role of Stock Ownership by US Members of Congress on the Market for Political Favors
81 Pages Posted: 19 Mar 2010 Last revised: 30 Jan 2014
Date Written: February 28, 2011
Abstract
I examine whether stock ownership by politicians helps to enforce noncontractible quid pro quo relations with firms. The ownership by US Congress members in firms contributing to their election campaigns is higher than in noncontributors. This bias toward contributors depends on the financial incentives of politicians and the relation’s value. Firms with a stronger ownership-contribution association receive more government contracts. The financial gains from these contracts are economically large. When politicians divest stocks, firms discontinue contributions to the politicians, lose future contracts, and perform poorly. Politicians divest the stocks in contributors, but not in noncontributors, in anticipation of retirement.
Keywords: Portfolio choice; Politics of financial markets; Government contracts; Politicians–firms relation; Investment by politicians
JEL Classification: D72, G10, G11, G18, G38
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Mara Faccio
-
Cronyism and Capital Controls: Evidence from Malaysia
By Simon Johnson and Todd Mitton
-
Cronyism and Capital Controls: Evidence from Malaysia
By Simon Johnson and Todd Mitton
-
Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market
By Atif R. Mian and Asim Ijaz Khwaja
-
Political Connections and Corporate Bailouts
By Mara Faccio, Ronald W. Masulis, ...
-
Institutions, Ownership, and Finance: The Determinants of Profit Reinvestment Among Chinese Firms
By Robert Cull and Lixin Colin Xu
-
The East Asia Crisis and Corporate Finances: The Untold Micro Story
-
Political Connections and Preferential Access to Finance: The Role of Campaign Contributions
By Stijn Claessens, Erik Feyen, ...
-
Political Connections and Preferential Access to Finance: The Role of Campaign Contributions
By Stijn Claessens, Erik Feyen, ...