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Rent Seeking by Agents of the Firm

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  • Gupta, Sanjay
  • Swenson, Charles W

Abstract

This study examines the role of managers' political campaign contributions in relation to their firms' tax benefits. The study differs from extant public choice literature that has not examined the role of self-interested agents within the firm. Using a major tax law change, we find that firms' political action committee contributions and individual managers' campaign contributions are both positively associated with firm tax benefits (rents) at stake. We also observe these contributions to be an increasing function of managers' wealth effects through the existence of bonus plans that are based on after-tax earnings and ownership of the firm's stock. The policy implications are that firms' own tax benefits, as well as its managers' individual wealth-enhancing effects, may influence campaign contributions.

Suggested Citation

  • Gupta, Sanjay & Swenson, Charles W, 2003. "Rent Seeking by Agents of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 253-268, April.
  • Handle: RePEc:ucp:jlawec:y:2003:v:46:i:1:p:253-68
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    File URL: http://dx.doi.org/10.1086/345579
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    References listed on IDEAS

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    1. Williams, Michael G. & Swenson, Charles W., 1999. "A model of corporate rent-seeking through tax legislation," Journal of Accounting and Public Policy, Elsevier, vol. 18(4-5), pages 375-394.
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    Cited by:

    1. Hadani, Michael & Dahan, Nicolas M. & Doh, Jonathan P., 2015. "The CEO as chief political officer: Managerial discretion and corporate political activity," Journal of Business Research, Elsevier, vol. 68(11), pages 2330-2337.
    2. Desai, Mihir A. & Dharmapala, Dhammika, 2006. "Corporate tax avoidance and high-powered incentives," Journal of Financial Economics, Elsevier, vol. 79(1), pages 145-179, January.
    3. Omer Unsal & M. Kabir Hassan & William J. Hippler, 2016. "Lobbying in Finance Industry: Evidence from US Banking System," NFI Working Papers 2017-WP-03, Indiana State University, Scott College of Business, Networks Financial Institute.
    4. Dane M. Christensen & Dan S. Dhaliwal & Steven Boivie & Scott D. Graffin, 2015. "Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance," Strategic Management Journal, Wiley Blackwell, vol. 36(12), pages 1918-1938, December.

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