Power, Scrutiny, and Congressmen's Favoritism for Friends' Firm

56 Pages Posted: 18 Aug 2020

See all articles by Quoc-Anh Do

Quoc-Anh Do

Sciences Po - Department of Economics; Centre for Economic Policy Research (CEPR)

Yen-Teik Lee

Shanghai University of Finance and Economics

Bang Dang Nguyen

University of Cambridge Judge Business School

Kieu-Trang Nguyen

London School of Economics & Political Science

Date Written: August 2020

Abstract

Does more political power always lead to more favoritism? The usual affirmative answer overlooks scrutiny's role in shaping the pattern of favoritism over the ladder of power. When attaining higher-powered positions under even stricter scrutiny, politicians may reduce quid-pro-quo favors towards connected firms to preserve their career prospect. Around close Congress elections, we find RDD-based evidence of this adverse effect that a politician's win reduces his former classmates' firms stock value by 2.8%. As predicted, this effect varies by cross-state scrutiny, politicians' power, firms' size and governance, and connection strength. It diminishes as a politician's career concern fades over time.

Keywords: close election, congressmen, favoritism, political connection, Power, RDD, scrutiny

JEL Classification: D72, D73, D85, G14, G32

Suggested Citation

Do, Quoc-Anh and Lee, Yen-Teik and Nguyen, Bang Dang and Nguyen, Kieu-Trang, Power, Scrutiny, and Congressmen's Favoritism for Friends' Firm (August 2020). CEPR Discussion Paper No. DP15141, Available at SSRN: https://ssrn.com/abstract=3674929

Quoc-Anh Do (Contact Author)

Sciences Po - Department of Economics ( email )

28 rue des Saints-Pères
Paris, 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Yen-Teik Lee

Shanghai University of Finance and Economics

777 Guoding Road
Shanghai, AK 200433
China

Bang Dang Nguyen

University of Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 122 376 0470 (Phone)
+44 1223 339701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/nguyenbd.html

Kieu-Trang Nguyen

London School of Economics & Political Science ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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