Power, Scrutiny, and Congressmen's Favoritism for Friends' Firm

Quoc-Anh Do, Yen Teik Lee, Bang Dang Nguyen and Kieu-Trang Nguyen

No 15141, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Does higher office always lead to more favoritism? We argue that firms may lose their benefit from a connected politician’s 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 politician’s 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 politician’s power, firm size and governance, and connection strength, and diminishes as a politician’s career concern fades over time.

Keywords: Favoritism; Power; Scrutiny; Political connection; Congressmen; Close election (search for similar items in EconPapers)
JEL-codes: D72 D73 D85 G14 G32 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-bec and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Power, Scrutiny, and Congressmen’s Favoritism for Friends’ Firms (2023)
Working Paper: Power, Scrutiny, and Congressmen's Favoritism for Friends' Firms (2023)
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