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Power, Scrutiny, and Congressmen’s Favoritism for Friends’ Firms

Author

Listed:
  • Quoc-Anh Do
  • Yen-Teik Lee
  • Bang D. Nguyen
  • Kieu-Trang Nguyen

Abstract

Does higher office always lead to more favoritism? We argue that firms may lose their benefit from a connected politicians ascent to higher office, if it entails stricter scrutiny that may reduce favoritism. Around close Congress elections, we find RDD-based evidence of this adverse effect that a politicians win reduces his former classmates firms stock value by 3.2% after a week. Exploiting the entry of Craigslist across the U.S., we find that state-level scrutiny drives this effect. It further varies with politicians power, firm size and governance, and connection strength, and diminishes as a politicians career concern fades over time.

Suggested Citation

  • Quoc-Anh Do & Yen-Teik Lee & Bang D. Nguyen & Kieu-Trang Nguyen, 2023. "Power, Scrutiny, and Congressmen’s Favoritism for Friends’ Firms," CESifo Working Paper Series 10760, CESifo.
    • Handle: RePEc:ces:ceswps:_10760
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    Cited by:

    1. is not listed on IDEAS
    2. Wagner, Wolf & Lambert, Thomas & Zhang, Eden Quxian, 2020. "Banks, Political Capital, and Growth," CEPR Discussion Papers 15612, C.E.P.R. Discussion Papers.

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    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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