Rent Seeking by Agents of the Firm

16 Pages Posted: 16 Aug 2001 Last revised: 4 Oct 2010

See all articles by Sanjay Gupta

Sanjay Gupta

Michigan State University - Eli Broad College of Business

Charles W. Swenson

University of Southern California - Leventhal School of Accounting

Date Written: April 1, 2003

Abstract

This study examines the role of managers’ political campaign contributions in relation to their firms’ tax benefits. The study differs from extant public choice literature that has not examined the role of self-interested agents within the firm. Using a major tax law change, we find that firms’ political action committee contributions and individual managers’ campaign contributions are both positively associated with firm tax benefits (rents) at stake. We also observe these contributions to be an increasing function of managers’ wealth effects through the existence of bonus plans that are based on after-tax earnings and ownership of the firm’s stock. The policy implications are that firms’ own tax benefits, as well as its managers’ individual wealth-enhancing effects, may influence campaign contributions.

Keywords: Campaign expenditures, Rent-seeking, Taxation, PACs

JEL Classification: D72, H25

Suggested Citation

Gupta, Sanjay and Swenson, Charles W., Rent Seeking by Agents of the Firm (April 1, 2003). Journal of Law and Economics, Vol. 46, No. 1, 2003. Available at SSRN: https://ssrn.com/abstract=278445 or http://dx.doi.org/10.2139/ssrn.278445

Sanjay Gupta

Michigan State University - Eli Broad College of Business ( email )

632 Bogue Street, 520 BCC
East Lansing, MI 48824
United States
517-432-6488 (Phone)

HOME PAGE: http://www.broad.msu.edu/

Charles W. Swenson (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

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