Political Influence and Government Investment: Evidence from Contract-Level Data

Brogaard, Jonathan; Denes, Matthew; Duchin, Ran

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Political Influence and Government Investment: Evidence from Contract-Level Data

52 Pages Posted: 13 May 2015 Last revised: 25 Nov 2016

Jonathan Brogaard

University of Washington - Department of Finance and Business Economics

Matthew Denes

Carnegie Mellon University - Tepper School of Business

Ran Duchin

University of Washington - Michael G. Foster School of Business

Date Written: August 26, 2016

Abstract

We use contract-level data to study the effect of corporate political influence on the allocation, design, and real outcomes of government contracts. To isolate the treatment effect of political influence, we focus on campaign contributions in close elections and the 2009 American Recovery and Reinvestment Act. Firms with political influence win more contracts, with larger amounts, weaker competition, and looser oversight, and successfully renegotiate contract terms. While preferred access to government contracts improves performance and output, contractual laxity exacerbates agency problems and erodes efficiency. Overall, we provide estimates of the dual effect of political influence on firm outcomes.

Keywords: Political economy, political connections, campaign contributions, innovation

JEL Classification: D72, O31, P16

Suggested Citation: Suggested Citation

Brogaard, Jonathan and Denes, Matthew and Duchin, Ran, Political Influence and Government Investment: Evidence from Contract-Level Data (August 26, 2016). Available at SSRN: https://ssrn.com/abstract=2604805