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Guilty by Political Association: The Impact of Political Scandals on Connected Firms

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  • April Knill
  • Baixiao Liu
  • John J. McConnell
  • Cayman Seagraves

Abstract

Over the period 1992–2018, we investigate the economic impact of scandal-tainted congresspersons on politically connected firms. Following the first media report of a scandal, firms connected to the scandal-tainted congressperson experience a relative loss in market value. The loss manifests through both a reputational spillover and a reduced effectiveness of the congressperson in granting political favors to firms. Our findings indicate an undocumented cost of corporate political connections—the loss that occurs when a connected politician is caught up in a scandal.

Suggested Citation

  • April Knill & Baixiao Liu & John J. McConnell & Cayman Seagraves, 2024. "Guilty by Political Association: The Impact of Political Scandals on Connected Firms," Journal of Law and Economics, University of Chicago Press, vol. 67(4), pages 841-877.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/729929
    DOI: 10.1086/729929
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