Valuing Changes in Political Networks: Evidence from Campaign Contributions to Close Congressional Elections
The Review of Financial Studies, Forthcoming
49 Pages Posted: 29 Feb 2012 Last revised: 7 May 2015
Date Written: December 1, 2014
This paper investigates the value of firm political connections using a regression discontinuity design in a sample of close, off-cycle U.S. congressional elections. I compare firms donating to winning candidates and firms donating to losing candidates and find that post-election abnormal equity returns are 3% higher for firms donating to winning candidates. Connections to politicians serving on powerful congressional committees such as appropriations and taxation are especially valuable and impact contributing firms’ sales. Firms' campaign contributions are correlated with other political activities such as lobbying and hiring former government employees, suggesting that firms take coordinated actions to build political networks.
Keywords: Politics, Political Connections, Finance, Regression Discontinuity, Campaign Finance, Campaign Contribution, Political Economy
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