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Does Campaign Finance imply Political Favors?

Author

Listed:
  • Stijn Claessens

    (World Bank)

  • Erik Feijen

    (Universiteit van Amsterdam)

  • Luc Laeven

    (World Bank)

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.

Suggested Citation

  • Stijn Claessens & Erik Feijen & Luc Laeven, 2006. "Does Campaign Finance imply Political Favors?," Tinbergen Institute Discussion Papers 06-002/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20060002
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    References listed on IDEAS

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    Cited by:

    1. Stephen Haber & Enrico Perotti, 2008. "The Political Economy of Financial Systems," Tinbergen Institute Discussion Papers 08-045/2, Tinbergen Institute.

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    More about this item

    Keywords

    Campaign Contributions; Elections; Corruption; Preferential Lending;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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