Do Powerful Politicians Cause Corporate Downsizing?

59 Pages Posted: 30 Jun 2009 Last revised: 5 Apr 2016

Lauren Cohen

Harvard Business School; National Bureau of Economic Research (NBER)

Joshua D. Coval

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Christopher J. Malloy

Harvard Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 7, 2011

Abstract

This paper employs a new empirical approach for identifying the impact of government spending on the private sector. Our key innovation is to use changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, we show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity. These corporate behaviors follow both Senate and House committee chair changes, are partially reversed when the congressman resigns, and are most pronounced among geographically-concentrated firms. The effects are economically meaningful and the mechanism - entirely distinct from the more traditional interest rate and tax channels - suggests new considerations in assessing the impact of government spending on private sector economic activity.

Keywords: government spending, seniority, corporate behavior, investment, earmarks

JEL Classification: E13, E62, G31

Suggested Citation

Cohen, Lauren and Coval, Joshua D. and Malloy, Christopher J., Do Powerful Politicians Cause Corporate Downsizing? (October 7, 2011). Available at SSRN: https://ssrn.com/abstract=1426106 or http://dx.doi.org/10.2139/ssrn.1426106

Lauren Cohen

Harvard Business School ( email )

Rock Center 321
Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/lcohen

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joshua D. Coval

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christopher J. Malloy (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Baker Library 277
Boston, MA 02163
United States
617-495-4383 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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