Politically Connected Governments

Forthcoming, Journal of Accounting Research

60 Pages Posted: 15 May 2018 Last revised: 30 Jul 2020

See all articles by Christine Cuny

Christine Cuny

New York University (NYU) - Leonard N. Stern School of Business

Jungbae Kim

New York University - Stern School of Business

Mihir N. Mehta

University of Michigan at Ann Arbor

Date Written: May 7, 2020

Abstract

This paper examines the consequences of powerful political connections for local governments. We find that governments located within the constituencies of, and thus connected to, powerful congressional members reduce their stewardship over public resources. Using plausibly-exogenous declines in the power of congressional representation, we show that the effect is causal. To better understand why connected local governments can reduce stewardship, we study electoral characteristics. Our findings suggest that the increased resources that come with powerful congressional representation allow local-government officials to reduce stewardship without material adverse effects on their reelection prospects. In sum, our findings provide evidence of a cost of political connections: they weaken local governments’ incentives to act in a socially optimal manner.

Keywords: Governance, Stewardship, Political Economy, Financial reports, Congress, Political Connections, Audit

JEL Classification: G18, G38, H1, H7, H83, M4

Suggested Citation

Cuny, Christine and Kim, Jungbae and Mehta, Mihir N., Politically Connected Governments (May 7, 2020). Forthcoming, Journal of Accounting Research, Available at SSRN: https://ssrn.com/abstract=3171830 or http://dx.doi.org/10.2139/ssrn.3171830

Christine Cuny (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Ste. 10-91
New York, NY NY 10012
United States
212-998-0423 (Phone)

Jungbae Kim

New York University - Stern School of Business ( email )

44 West 4th Street
KMC 10-99
New York, NY 10012
United States

Mihir N. Mehta

University of Michigan at Ann Arbor ( email )

701 Tappan Ave
Ann Arbor, MI 48109
United States

HOME PAGE: http://www.mihirnmehta.com

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