Political Influence and the Renegotiation of Government Contracts
59 Pages Posted: 13 May 2015 Last revised: 16 Dec 2018
Date Written: December 15, 2018
This paper provides novel evidence that corporate political influence operates through ex-post 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 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, 87% of total government investment in contracts with politically connected firms and 91% of their time-to-completion are allocated through ex-post renegotiations.
Keywords: Political economy, political connections, campaign contributions, procurement
JEL Classification: D72, H57, P16
Suggested Citation: Suggested Citation