Is the Revolving Door of Washington a Back Door to Government Contracts and Excess Returns?

40 Pages Posted: 21 Apr 2015 Last revised: 25 Nov 2018

See all articles by Mehmet Canayaz

Mehmet Canayaz

Pennsylvania State University - Smeal College of Business

Jose Vicente Martinez

University of Connecticut

Han N. Ozsoylev

Koc University - College of Administrative Sciences and Economics

Date Written: November 23, 2018

Abstract

The movement of individuals between government positions and private sector employment influences federal government contracting decisions and stock market returns. Firms that will soon hire government officials receive valuable government contracts, beat consensus earnings forecasts, and outperform in the stock market. Managers of these firms can successfully forecast future firm earnings that come as a surprise to equity analysts. These findings are consistent with an implicit quid pro quo relationship between some government officials and firms. We run a battery of robustness checks to mitigate endogeneity concerns and address other possible explanations.

Keywords: Corporate political connections, government contracts, regulatory capture, revolving door

JEL Classification: D73, G12, G18, L51

Suggested Citation

Canayaz, Mehmet and Martinez, Jose Vicente and Ozsoylev, Han N., Is the Revolving Door of Washington a Back Door to Government Contracts and Excess Returns? (November 23, 2018). Available at SSRN: https://ssrn.com/abstract=2596520 or http://dx.doi.org/10.2139/ssrn.2596520

Mehmet Canayaz

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States

Jose Vicente Martinez

University of Connecticut ( email )

2100 Hillside Road, Unit 1041
Storrs, CT 06269
United States

Han N. Ozsoylev (Contact Author)

Koc University - College of Administrative Sciences and Economics ( email )

Rumelifeneri Yolu
Sariyer 80910, Istanbul
Turkey

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