Political Influence and the Renegotiation of Government Contracts

Review of Financial Studies, Forthcoming

60 Pages Posted: 13 May 2015 Last revised: 19 Jun 2020

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Matthew Denes

Carnegie Mellon University - Tepper School of Business

Ran Duchin

Boston College - Carroll School of Management

Date Written: May 7, 2020

Abstract

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

Brogaard, Jonathan and Denes, Matthew and Duchin, Ran, Political Influence and the Renegotiation of Government Contracts (May 7, 2020). Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2604805 or http://dx.doi.org/10.2139/ssrn.2604805

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Matthew Denes (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://sites.google.com/site/matthewdenes

Ran Duchin

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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