Political Contributions and the Price of Credit Risk: Evidence from Credit Default Swaps

Alexei Ovtchinnikov, Shunlan Fang (), Paul Hanouna () and Saumya Prabhat ()

No 1222, HEC Research Papers Series from HEC Paris

Abstract: Firm political contributions are associated with lower credit default swap spreads for contributing firms. To address endogeneity, we employ novel instruments and use a set of exogenous events on campaign contribution restrictions: (a) the passage of the Bipartisan Campaign Reform Act (BCRA) that banned soft money contributions, (b) the Federal Election Commission decision to interpret the BCRA less strictly, (c) the partial reversal of the BCRA and, (d) the McConnell v. FEC Supreme Court decision, which upheld the BCRA. Overall, the evidence suggests that political contributions are valued by credit market participants.

Keywords: Political Contributions; Credit Risk; CDS; Moral Hazard; Financial Crisis (search for similar items in EconPapers)
JEL-codes: D72 G18 G20 G24 G28 G32 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2017-08-01, Revised 2017-11-16
New Economics Papers: this item is included in nep-pol
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Political Contributions and the Price of Credit Risk: Evidence from Credit Default Swaps (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1222

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