Power, Scrutiny, and Congressmen’s Favoritism for Friends’ Firms
CESifo, Munich, 2023
CESifo Working Paper No. 10760
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.
Public Finance
Public Choice