Do Pivotal Politicians Benefit Constituent Companies?

65 Pages Posted: 20 Apr 2022 Last revised: 7 Jul 2022

See all articles by Sahil Raina

Sahil Raina

University of Alberta - School of Business

Sheng-Jun Xu

University of Alberta - School of Business

Date Written: April 8, 2022

Abstract

We study how pivotal politicians use their political leverage to benefit constituent firms. U.S. senators from swing states are more pivotal to passing legislation than senators from partisan states when the Senate is controlled by a narrower margin of seats, and we exploit the resulting shift in bargaining power to identify the effects of political leverage on firms. We find that firms located in swing states increase investment, have higher market valuations, and raise more equity when the Senate is relatively balanced. We further find evidence that these positive effects stem from favorable tax and trade policies. Lastly, we conduct an event study around the 2021 Senate runoff elections in Georgia, and find that swing-state firms experienced higher stock returns relative to partisan-state firms following an unexpected even split in the Senate.

Keywords: pivotal politicians, corporate investment, firm value, redistribution

JEL Classification: D72, G31, G32, G38, H25

Suggested Citation

Raina, Sahil and Xu, Sheng-Jun, Do Pivotal Politicians Benefit Constituent Companies? (April 8, 2022). Available at SSRN: https://ssrn.com/abstract=4079133 or http://dx.doi.org/10.2139/ssrn.4079133

Sahil Raina (Contact Author)

University of Alberta - School of Business ( email )

2-32B Business Building
Edmonton, Alberta T6G 2R6
Canada

HOME PAGE: http://sites.ualberta.ca/~sraina/

Sheng-Jun Xu

University of Alberta - School of Business ( email )

2-32D Business Building
Edmonton, Alberta T6G 2R6
Canada

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