Valuing Changes in Political Networks: Evidence from Campaign Contributions to Close Congressional Elections
61 Pages Posted: 5 Oct 2013 Last revised: 15 Nov 2013
Date Written: November 2013
This paper investigates the value of firm political connections to US congressional candidates using a regression discontinuity design. In a sample of close special elections occurring at times unrelated to firm-specific economic events or broader political events, I compare the abnormal returns of firms that contributed to winning candidates to those of firms that contributed to losing candidates. I find the wedge between these firms to be 1.7% to 6.8% of firm equity value. To assess which areas of policy matter most, I test which congressional committee assignment seats are the most valuable. In particular, the loss of a connection to the Senate Appropriations committee leads to a loss of $1.9 billion in sales in the following year. Finally, I examine additional actions that firms take to develop political networks — directly hiring former government employees and engaging professional lobbyists — and find that these actions complement their contribution strategies.
Keywords: Politics and Finance, Political Connections
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