Do Financial Markets Affect Election Outcomes? Evidence from Municipal Bond Ratings

53 Pages Posted: 18 Mar 2016 Last revised: 9 Jan 2019

See all articles by Igor Cunha

Igor Cunha

University of Kentucky

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Rui Silva

London Business School - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 3, 2019

Abstract

We show that financial markets can affect political outcomes. Specifically, we study the effects of municipal bond ratings on gubernatorial and mayoral elections in the United States. We find that incumbent politicians in upgraded municipalities experienced an increase in their vote shares. Our evidence is consistent with ratings affecting elections directly by improving voter perceptions of the quality of incumbents, and indirectly by improving local economic conditions. We identify these effects by exploiting exogenous variation in municipal bond ratings due to Moody's recalibration of its scale in 2010.

Keywords: Elections, Credit Ratings, Financial Constraints, Municipal Bonds, Government Spending, Economic Conditions

JEL Classification: D72, G24, H74

Suggested Citation

Cunha, Igor and Ferreira, Miguel Almeida and Silva, Rui, Do Financial Markets Affect Election Outcomes? Evidence from Municipal Bond Ratings (January 3, 2019). Available at SSRN: https://ssrn.com/abstract=2748458 or http://dx.doi.org/10.2139/ssrn.2748458

Igor Cunha

University of Kentucky ( email )

Gatton College of Business and Economics
550 S. Limestone
Lexington, KY 40526
United States
859-257-5703 (Phone)

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Rui Silva

London Business School - Department of Finance ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
342
Abstract Views
1,714
rank
86,187
PlumX Metrics