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The Politics of Government Investment

54 Pages Posted: 1 Jul 2009 Last revised: 15 Sep 2013

Ran Duchin

University of Washington - Michael G. Foster School of Business

Denis Sosyura

Arizona State University

Date Written: November 2011

Abstract

This paper investigates the relation between corporate political connections and government investment. We study various forms of political influence, ranging from passive connections between firms and politicians, such as those based on politicians’ voting districts, to active forms, such as lobbying, campaign contributions, and employment of connected directors. Using hand-collected data on firm applications for TARP funds, we find that politically connected firms are more likely to be funded, controlling for other characteristics. Yet investments in politically connected firms underperform those in unconnected firms. Overall, we show that connections between firms and regulators are associated with distortions in investment efficiency.

Keywords: Troubled Asset Relief Program, TARP, political connections, lobbying, contributions

JEL Classification: D72, G01, G21, G28

Suggested Citation

Duchin, Ran and Sosyura, Denis, The Politics of Government Investment (November 2011). Journal of Financial Economics (JFE), Vol. 106, No. 1, 2012. Available at SSRN: https://ssrn.com/abstract=1426219 or http://dx.doi.org/10.2139/ssrn.1426219

Ran Duchin

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Denis Sosyura (Contact Author)

Arizona State University ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://www.public.asu.edu/~dsosyura/

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