Political Connections and the Allocation of Procurement Contracts

Abstract:     
This paper analyzes whether political connections of public corporations in the United States affect the allocation of government procurement contracts. The paper classifies the political affiliation of S&P 500 companies using hand collected data that detail the past political position of each of their board members. Using this classification, the study focuses on the change in control of both House and Senate following the 1994 midterm election and on the change in the Presidency following the 2000 election. An analysis of the change in the value of the procurement contracts awarded to these companies before and after 1994 and 2000, respectively, indicates that companies that are connected to the winning (losing) party are significantly more likely to experience an increase (decrease) in procurement contracts. The results remain significant after controlling for industry classifications as well as for several firm characteristics. In total, these findings suggest that the allocation of procurement contracts is influenced, at least in part, by political connections. Thus, our study provides one of the first pieces of evidence showing a direct avenue through which political connections add value to U.S. companies.

Keywords: Politics, Corporate Governance, Boards, Procurement Contracts

JEL Classifications: D21, G14, G30, H20, H57

Working Paper Series