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Firm performance and the crowd effect in lobbying competition

Author

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  • Girard, Alexandre
  • Gnabo, Jean-Yves
  • Londoño van Rutten, Rodrigo

Abstract

This paper connects with the Tullock paradox on why is there so little money in politics. Exploiting data on S&P500 firms over the 2000-2019 period, we use polynomial and B-spline non-parametric models to show that relative lobbying expenditures and firm performance have an inverted-N relationship. To account for the competitive aspect of lobbying, our main variable is defined as the ratio between firm's lobbying expenditures and the average sectoral lobbying. Firms that either do not lobby enough or lobby too much compared to their lobbying competitors have a negative marginal impact on their performance, which might partly explain the Tullock paradox at the intensive margin. This result is robust to endogeneity concerns that we treat using GMM and control function methodologies.

Suggested Citation

  • Girard, Alexandre & Gnabo, Jean-Yves & Londoño van Rutten, Rodrigo, 2023. "Firm performance and the crowd effect in lobbying competition," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322007942
    DOI: 10.1016/j.frl.2022.103618
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    More about this item

    Keywords

    B-spline; Discontinuity; Firm performance; Lobbying; Relative lobbying; Spline; Tullock paradox;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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