It's a Sweetheart of a Deal: Political Connections and Corporate-Federal Contracting
Financial Review, Vol. 54, Issue 1, pp. 57-84, 2019
37 Pages Posted: 16 Nov 2016 Last revised: 9 Sep 2019
Date Written: August 13, 2018
We examine whether political connections measured by political contributions influence the choice of terms included in government contracts awarded to firms. We construct an index of four “sweetheart” contract terms and find that firms making larger political contributions more frequently have these favorable terms included in their contracts. We also find that political contributions have explanatory power for contract design after controlling for lobbying, negotiation power, and the employment of former government employees. These results are robust to alternative model specifications, different estimation techniques, various variable measurements, and adjustments for possible endogeneity.
Keywords: Contracting, political connections
JEL Classification: G32; GT34; G38
Suggested Citation: Suggested Citation