Executives in Politics

Ilona Babenko (Arizona State University)
Viktar Fedaseyeu (CEIBS)
Song Zhang (Boston College)

Abstract : We document that the share of corporate executives in federal elected office increased from 13.3% in 1980 to 22.6% in 2018 and find evidence suggesting that executives enter politics to advance their firms’ interests. First, firms make substantial political contributions to their former executives. Second, executives’ electoral wins and legislation passage are associated with positive stock returns for their firms. Third, executives are more likely to join congressional committees overseeing their firms’ industries. Fourth, executives accumulate a pro-business voting record. Finally, executives are more likely to seek political office when their industries are hit by competitive shocks.

Power, Scrutiny, and Favoritism for Friends' Firms: Evidence from Close Congress Elections

Quoc-Anh Do (Northwestern University; Sciences Po; CEPR)
Yen-Teik Lee (Asia School of Business in collaboration with MIT)
Bang D. Nguyen (University of Cambridge Judge Business School)
Kieu-Trang Nguyen (Northwestern University)

Abstract : Does more political power always lead to more favoritism? The literature's usual affirmative answer overlooks the role of scrutiny in shaping the pattern of favoritism over the ladder of power. When a higher-powered position comes with much tighter scrutiny, a politician reaching this position may reduce his quid-pro-quo favors towards connected firms for fear of jeopardizing his career prospect. We find robust RDD-based evidence of this adverse effect among candidates in close elections to the U.S. Congress and firms whose directors are their former classmates. A politician's election to Congress, compared with a defeat, reduces the stock value of his friend's firm by 2.8% within a week. Consistent with our theoretical predictions, this adverse effect varies in response to cross-state scrutiny levels, politicians' power to give favor, and connection strength. It is prevalent in politicians' earlier career, when career concerns are more important, and changes to a value gain in the later stage of their career.

What Drives U.s. Corporate Elites' Campaign Contribution Behavior?

Edoardo Teso (Northwestern Kellogg)

Abstract : Do U.S. corporate elites contribute to political campaigns purely motivated by ideological considerations, or are their donations also a tool of political influence? Using a new panel of contributions to Members of Congress (MCs) by 263,668 corporate leaders of U.S. corporations, I show that individuals’ donations vary over time as a function of MCs’ policy relevance for individuals’ companies: the likelihood of donating sharply increases when a MC becomes “policy relevant” to an individual’s company. The estimates suggest that 16 percent of the observed gap in U.S. corporate elites’ donations to “policy relevant” versus other MCs is driven by an influence-seeking motive.