Political Influence and the Renegotiation of Government Contracts
Review of Financial Studies, Forthcoming
60 Pages Posted: 13 May 2015 Last revised: 19 Jun 2020
Date Written: May 7, 2020
This paper provides novel evidence that corporate political influence operates through renegotiations of existing government contracts. Using detailed data on contractual terms and renegotiations around sudden deaths and resignations of local politicians, the estimates show that politically connected firms initially bid low and successfully renegotiate contract amounts, deadlines, and incentives. The effects hold across different industries and contract types, enhance firm value, and persist around the exogenous increase in contract supply due to the American Recovery and Reinvestment Act of 2009. Overall, this paper puts forth an unexplored link between political influence, ex-post renegotiations and ex-ante bidding of government contracts.
Keywords: Political economy, political connections, campaign contributions, procurement
JEL Classification: D72, H57, P16
Suggested Citation: Suggested Citation