Guilty by Political Association: The Impact of Political Scandals on Connected Firms

46 Pages Posted: 18 Oct 2021 Last revised: 15 Jun 2022

See all articles by April M. Knill

April M. Knill

Florida State University College of Business; Florida State University - College of Law

Baixiao Liu

Peking University HSBC Business School

John J. McConnell

Purdue University

Cayman Seagraves

Department of Finance, College of Business, Florida State University

Date Written: April 1, 2020

Abstract

Using a sample of scandals involving US congresspersons, we investigate the spillover from the scandal-tainted congresspersons to firms connected to them through PAC contributions. Following the first media report of a scandal, firms connected to the scandal-tainted congresspersons experience a relative loss in market value and in future operating and financing opportunities. The effects are more pronounced if the congressperson does not resign prior to the next election. Our findings indicate that a potential cost of political connections is the loss that occurs when a congressperson to whom a firm is connected is caught up in a scandal.

Keywords: Political Scandal, Political Connection, Spillover, Firm Valuation

JEL Classification: G14; G30

Suggested Citation

Knill, April M. and Liu, Baixiao and McConnell, John J. and Seagraves, Cayman, Guilty by Political Association: The Impact of Political Scandals on Connected Firms (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=3943278 or http://dx.doi.org/10.2139/ssrn.3943278

April M. Knill (Contact Author)

Florida State University College of Business ( email )

Tallahassee, FL 32306-1042
United States
(850) 644-2047 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Baixiao Liu

Peking University HSBC Business School ( email )

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

Cayman Seagraves

Department of Finance, College of Business, Florida State University ( email )

821 Academic Way, RBA 311
P.O. Box 3061110
Tallahassee, FL 32306-1042
United States

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