Does Campaign Finance imply Political Favors?

Stijn Claessens (), Erik Feijen () and Luc Laeven
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Erik Feijen: Universiteit van Amsterdam

No 06-002/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper provides empirical evidence that campaign contributions arestrongly associated with market expectations of future firm-specific political favors,including preferential access to external financing. Using a novel dataset, we find thatfirms in Brazil providing contributions in the 1998 campaign to (elected) federal deputiesexperienced higher stock returns following the election, even after controlling forindustry-specific effects and firm-specific controls. This suggests that federal deputieswere expected to shape policy to benefit these firms in particular. Consistent with suchpolitical favors, we find that these firms relative to a control group substantially increasedtheir financial leverage in the four years following election, suggesting that contributionsgained firms preferential access to finance.

Keywords: Campaign Contributions; Elections; Corruption; Preferential Lending (search for similar items in EconPapers)
JEL-codes: D7 G1 G2 G3 P48 (search for similar items in EconPapers)
Date: 2006-01-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20060002

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