Inside job
The Value of Connections in Turbulent Times: Evidence from the United States
Daron Acemoglu et al.
NBER Working Paper, December 2013
Abstract:
The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner’s confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small network of financial sector executives during a time of acute crisis and heightened policy discretion.
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Presidential Prospects, Political Support, and Stock Market Performance
Nikhar Gaikwad
Quarterly Journal of Political Science, Fall 2013, Pages 451-464
Abstract:
I exploit the sudden and dramatic jolt that Osama Bin Laden's capture gave to Barack Obama's 2012 re-election prospects to gauge the relationship between presidential prospects and stock market valuation changes. Using campaign contributions as an indicator of political support, I find that following Bin Laden's death, firms that had previously supported Democrats registered significant positive returns, whereas firms that had supported Republicans registered significant negative returns. Across the S&P 500, the president's transformed re-election prospects shifted market capital worth $101 billion over one day and $245 billion over one week. My findings indicate that the relationship between the presidency and firm valuations is associated with patterns of past political support, substantively and significantly important, and more pronounced for the presidency than for Congress.
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The role of stock ownership by US members of Congress on the market for political favors
Ahmed Tahoun
Journal of Financial Economics, January 2014, Pages 86–110
Abstract:
I examine whether stock ownership by politicians helps to enforce noncontractible quid pro quo relations with firms. The ownership by US Congress members in firms contributing to their election campaigns is higher than in noncontributors. This bias toward contributors depends on the financial incentives of politicians and the relation's value. Firms with a stronger ownership–contribution association receive more government contracts. The financial gains from these contracts are economically large. When politicians divest stocks, firms discontinue contributions to the politicians, lose future contracts, and perform poorly. Politicians divest the stocks in contributors, but not in noncontributors, in anticipation of retirement.
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Washington Meets Wall Street: A Closer Examination of the Presidential Cycle Puzzle
Roman Kräussl et al.
Journal of International Money and Finance, forthcoming
Abstract:
We show that the annual excess return of the S&P 500 is almost 10 percent higher during the last two years of the presidential cycle than during the first two years. This pattern cannot be explained by business-cycle variables capturing time-varying risk premia, differences in risk levels, or by consumer and investor sentiment. We formally test the presidential election cycle (PEC) hypothesis as an alternative to explain the presidential cycle anomaly. The PEC states that incumbent parties and presidents have an incentive to manipulate the economy (via budget expansions and taxes) to remain in power. We formulate eight testable propositions relating to the fiscal, monetary, tax, unexpected inflation and political implications of the PEC hypothesis. We do not find statistically significant evidence confirming the PEC hypothesis as a plausible explanation for the presidential cycle effect. The presidential cycle effect in U.S. financial markets thus remains a puzzle that cannot be easily explained by politicians employing their economic influence to remain in power, as is often believed.
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Risk and Roll Calls: How Legislators' Personal Finances Shape Congressional Decisions
Christian Grose
University of Southern California Working Paper, April 2013
Abstract:
Does exposure to the stock market in legislators’ personal investment portfolios affect their vote choices? Do personal financial interests matter as much or more than the typical predictors of legislative decision-making such as party and constituency? I argue that legislator self-interest predicts more than just reelection-seeking behavior. Self-interest also suggests that legislators seek to maintain and protect their equity investments. I theorize that risk-averse legislators who have significant exposure to the stock market will make policy choices in order to avert market crashes and thus limit personal financial losses, and that legislators with little exposure to the market or who are risk accepting will not. Original data on the financial assets of members of Congress are collected and a novel measure of legislators’ revealed risk profiles is introduced. The empirical test is an examination of the eleventh-hour August 2011 U.S. House roll call to raise the U.S. debt limit. The findings show that risk-averse members of Congress with more money invested in the stock market were more likely to vote to increase the debt limit, presumably in order to avoid a market crash. The implications for the fields of political science, legislative decision-making, and finance are discussed.
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Presidents Profiting from Disasters: Evidence of Presidential Distributive Politics
Nicholas Stramp
Presidential Studies Quarterly, December 2013, Pages 839–865
Abstract:
In what ways do presidents engage in distributive politics? I study the effects of presidential electoral politics on the federal government's financial response to disasters. Specifically I ask whether swing states or safe states are more likely to receive additional disaster aid through presidentially ordered increases in the federal reimbursement rate for specific disasters. I examine four potential political factors affecting this distribution: swing states versus safe states, a president's base states versus the opposing party's base states, the presence of co-partisan presidents and governors, and the proximity of the next presidential election. I find that the effects vary by administration, with Bill Clinton not appearing to make partisan decisions in this way, while his successors include these factors when making the decisions. These findings demonstrate the presence of partisan political calculations in the distribution of disaster aid and also highlight differences in the ways power is handled in different presidential administrations.
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Political Economy of Presidential Disaster Declarations and Federal Disaster Assistance
Thomas Husted & David Nickerson
Public Finance Review, January 2014, Pages 35-57
Abstract:
Billions of dollars have been transferred to state governments for disaster recovery. Owing to the discretionary authority of the president in these decisions, moral hazard may influence approval of such requests. We test within a model of recursive choice the hypothesis that the sequential executive decisions to grant disaster declarations and the conditional amount of aid allocated are affected by political incentives. We combine expenditure and approval data from FEMA with state-level census and political data for the period 1969 through 2005. After accounting for the severity of flood damage in the state and the ability of the state to recover, an incumbent president is more likely to grant disaster declarations when facing reelection, particularly in states with a larger number of electoral votes and in states with a governor from the same political party as the president. We also find Democratic presidents award more disaster aid than their Republican counterparts.
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Natasha Burns & Jan Jindra
American Politics Research, forthcoming
Abstract:
We examine the impact of the Citizens United decision on firm value. While the value of U.S. firms do not respond significantly to the Citizens United decision on average, we find evidence that firms in industries subject to more extensive regulation react significantly and positively to the announcement. We also find evidence consistent with Justice John Paul Stevens’ argument that the Court decision will affect state laws. Specifically, our results indicate that firms that are headquartered in states with more stringent limits on political spending by corporations respond positively to the announcement.
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Term limits and the tobacco industry
Dorie Apollonio, Stanton Glantz & Lisa Bero
Social Science & Medicine, forthcoming
Abstract:
In the 1990s several American states passed term limits on legislators with the stated intention of reducing the influence of wealthy industries on career legislators. Although term limits in the United States do not have a direct relationship to public health, the tobacco industry anticipated that term limits could have indirect effects by either limiting or expanding industry influence. We detail the strategy of the tobacco industry in the wake of term limits using internal tobacco company documents and a database of campaign contributions made to legislators in term limited states between 1988 and 2002. Despite some expectations that term limits would limit tobacco industry access to state legislators, term limits appear to have had the opposite effect.
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Is Federalism a Political Safety Valve? Evidence from Congressional Decision Making, 1960–2005
Sara Chatfield & Philip Rocco
Publius, Winter 2014, Pages 1-23
Abstract:
American federalism is often described as a system that contains “political safety valves,” or institutional mechanisms that ensure that major policy reforms can be created, even during periods of intense political conflict. By granting discretion to the states, for example, scholars claim that Congress can ensure that diverse constituencies receive their preferred policies. In this article, we examine Congress’s pattern of delegating discretion to sub-national institutions in the postwar period, systematically assessing how the political conditions under which a broad sample of landmark legislation passed are related to the delegation of administrative authority to the states. Contrary to the “safety valve” image of federalism, we find very little evidence to suggest that Congress grants more discretion to sub-national governments under periods of intense political conflict.
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Strange bedfellows? Voluntary corporate social responsibility disclosure and politics
Paul Griffin & Yuan Sun
Accounting & Finance, December 2013, Pages 867–903
Abstract:
We show a reliable association between voluntary corporate social responsibility (CSR) disclosure and company political interests, which we proxy by company employees’ contributions to political action committees and statewide voting in presidential elections. This relation is most pronounced for the contributions of Democratic employees at companies in states that vote for the Democratic presidential candidate. We also show a positive association between corporate political contributions and excess stock returns. A portfolio strategy of investing based on company size, CSR disclosure intensity and corporate political contributions produces a significant positive mean excess stock return of 4.5 per cent over 3 months following CSR disclosure.
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The rise of contextual journalism, 1950s–2000s
Katherine Fink & Michael Schudson
Journalism, January 2014, Pages 3-20
Abstract:
Many journalists and other observers remember the 1960s as a watershed moment in American journalism. Do they remember correctly? This essay reviews relevant empirical studies on how US newspapers have changed since the 1950s. There is strong existing evidence that journalists have come to present themselves as more aggressive, that news stories have grown longer, and that journalists are less willing to have politicians and other government officials frame stories and more likely to advance analysis and context on their own. Based on content analysis of the New York Times, Washington Post, and Milwaukee Journal Sentinel, this study finds that the growth in ‘contextual reporting’ has been enormous – from under 10 percent in all three newspapers in 1955 to about 40 percent in 2003; ‘conventional’ news stories on the front page declined from 80–90 percent in all three papers to about 50 percent in all three papers in the same period. What this study calls ‘contextual reporting’ has not been widely recognized (unlike, say, investigative reporting) as a distinctive news genre or news style and this article urges that it receive more attention.
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The Dynamics of Public Investment Under Persistent Electoral Advantage
Marina Azzimonti
Federal Reserve Working Paper, November 2013
Abstract:
This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and their subsequent propagation to the economy. The struggle between groups that disagree on targeted public spending (e.g., pork) results in governments being endogenously short-sighted: Systematic underinvestment in infrastructure and overspending on targeted goods arise, above and beyond what is observed in symmetric environments. Because the party enjoying an electoral advantage is less short-sighted, it devotes a larger proportion of revenues to productive investment. Hence, political turnover induces economic fluctuations in an otherwise deterministic environment. I characterize analytically the longrun distribution of allocations and show that output increases with electoral advantage, despite the fact that governments expand. Volatility is non-monotonic in electoral advantage and is an additional source of inefficiency. Using panel data from US states I confirm these findings.
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“Know All Men By These Presents”: Bonds, Localism, and Politics in Early Republican Mississippi
Erik Mathisen
Journal of the Early Republic, Winter 2013, Pages 727-750
Abstract:
This article examines local politics in Mississippi during the early to mid-nineteenth century, by examining the bonds that officeholders were required to post to hold their positions in county government. The article argues that while states like Mississippi remain at the forefront of the history of American mass democracy, the existence of this election ritual paints a complicated picture of political practice. By requiring officeholders to post hundreds and even thousands of dollars to hold office, and by requiring that political friends vouch for them with their money and their reputations, bonds dampened democratic elections at every turn. In so doing, bonds suggest just some of the ways in which Americans practiced a much more complex politics than current paradigms allow.
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The political activities of American corporate leaders
Anthony Nownes & Nurgul Aitalieva
Business and Politics, November 2013, Pages 493–527
Abstract:
What is the nature and extent of corporate leader involvement in American national politics? The results of a mail survey of nearly 100 such individuals show that leaders are quite active, devoting an average of nearly 1 hour per day to national political activity. We also show that corporate leaders engage in a wide range of advocacy activities. Monetary activities loom particularly large in the political lives of American corporate leaders, as large numbers are approached by members of Congress for contributions, and many who are approached answer the call. In addition, we find that corporate leaders, unlike advocacy professionals, do a great deal of their advocacy work in private; for the most part they eschew public activities such as testifying before congressional committees. Speaking to the question of which leaders are most politically active, our data evince a strong relationship between firm political activity and firm leader political activity. In sum, politically active firms have politically active leaders. We thus contribute to the ongoing academic discussion of corporate political activity by showing that the CEO’s office is an additional locus of political power within business firms, and that CEO political activity is instrumental rather than consumptive in nature.
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The Bully Pulpit and Media Coverage: Power without Persuasion
Matthew Miles
International Journal of Press/Politics, January 2014, Pages 66-84
Abstract:
Though modern presidents seem to be less persuasive in their public campaigns for policy, they are more likely to go public. In addition, they publicly campaign for policies that they could enact without the support of Congress or the public. The dominant view emphasizes the persuasive capacity of the president or his ability to set the agenda of various government institutions; however, this neglects one of the more powerful components of the bully pulpit. I demonstrate that presidents can use the bully pulpit to remove issues from the national news agenda with relative ease. By modeling the daily change in national media content, I show that presidents can divert the attention of the national media away from issues that are less desirable toward more favorable issues with a single televised address. This suggests that the bully pulpit is more powerful than the current literature expects.
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Stéphane Lavertu, David Lewis & Donald Moynihan
Public Administration Review, November/December 2013, Pages 845–857
Abstract:
This article examines how ideological differences between political officials and agencies may have affected the implementation of an ostensibly nonpartisan, government-wide administrative initiative: the George W. Bush administration's Program Assessment Rating Tool (PART) review of federal programs. The analysis reveals that managers in agencies associated with liberal programs and employees (“liberal agencies”) agreed to a greater extent than those in agencies associated with conservative programs and employees (“conservative agencies”) that PART required significant agency time and effort and that it imposed a burden on management resources. Further analysis reveals that differences in reported agency effort can be explained partly by objective differences in the demands that PART placed on agencies — liberal agencies were required to evaluate more programs and implement more improvement plans relative to their organizational capacity — and partly by the ideological beliefs of employees — on average, liberal managers reported more agency effort, even after accounting for objective measures of administrative burden.
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No Strength in Numbers: The Failure of Big-City Bills in American State Legislatures, 1880–2000
Gerald Gamm & Thad Kousser
American Political Science Review, November 2013, Pages 663-678
Abstract:
Do big cities exert more power than less populous ones in American state legislatures? In many political systems, greater representation leads to more policy gains, yet for most of the nation's history, urban advocates have argued that big cities face systematic discrimination in statehouses. Drawing on a new historical dataset spanning 120 years and 13 states, we find clear evidence that there is no strength in numbers for big-city delegations in state legislatures. District bills affecting large metropolises fail at much higher rates than bills affecting small cities, counties, and villages. Big cities lose so often because size leads to damaging divisions. We demonstrate that the cities with the largest delegations — which are more likely to be internally divided — are the most frustrated in the legislative process. Demographic differences also matter, with district bills for cities that have many foreign-born residents, compared with the state as a whole, failing at especially high rates.
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Lian Jian & Nikki Usher
Journal of Computer-Mediated Communication, forthcoming
Abstract:
Crowd-funded journalism is a novel business model in which journalists rely on micropayments from ordinary people to finance their reporting. Based on analyses of the database of Spot.us, a pioneering crowd-funded journalism website, we examine the impact of crowd-funded journalism on the news produced. We apply a uses and gratifications approach to study consumers' choices when they donate to crowd-funded journalism and find that consumers are more likely to donate to stories that provide them with practical guidance for daily living (e.g., stories about public health or local city infrastructure), as opposed to stories from which they gain a general awareness of the world (e.g., cultural diversity, or government and politics). We discuss the implications for the future of news.
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Reexamining the Use of Unilateral Orders: Source of Authority and the Power to Act Alone
Jeremy Bailey & Brandon Rottinghaus
American Politics Research, forthcoming
Abstract:
Recent debate on the use of unilateral presidential directives suggests that a president’s ability to shape and act without the consent of Congress is largely unchecked by traditional institutional arrangements while other research shows that presidents are more likely to be restrained by Congress. This article contributes to this debate by examining the source of authority used in unilateral orders. Using a new database of unilateral orders and a new theory, we reexamine when presidents use unilateral orders. We find that orders that invoke Congressionally based sources of authority are used when Congress is stronger while those that are presidency-based are used when Congress is weaker. These findings allow us to be more precise about how presidential unilateral strategy is shaped by institutional forces.
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When Newsworthy is Not Noteworthy: Examining the value of news from the audience's perspective
Angela Lee & Hsiang Iris Chyi
Journalism Studies, forthcoming
Abstract:
In the history of news production, the gap between editors' news judgment and audience interest has been widely noticeable. In scholarly research, while news consumption remains a central focus, the value of news content as a product has rarely been examined from the audience's perspective. News is almost always presumed by scholars and practitioners to be of value, which, however, is not necessarily the case in today's media environment. The recent decline in news consumption from the traditional media is often attributed to demographic factors, particularly age. However, such age-oriented narratives shift the responsibility away from news providers to users. From the media economics standpoint, when news organizations fail to address users' needs and wants, the product delivers limited utility and demand would dwindle as a result. This study conceptualizes and empirically examines the “noteworthiness” of news content as perceived by the general public. Results based on a national survey of US internet users show that only about one-third of the content produced by the mainstream news media is perceived as noteworthy. While previous studies identified demographics as significant predictors of news consumption, findings from this study suggest that perceived noteworthiness is a stronger factor influencing news consumption in terms of news enjoyment, newspaper and TV news use, and paying intent for print newspapers. Instead of using technology to pursue a particular demographic group, news organizations should rethink their content strategy and prioritize audience-oriented value creation to serve news consumers at large.
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Pablo Querubin & James Snyder
Quarterly Journal of Political Science, Fall 2013, Pages 409-450
Abstract:
We employ a regression discontinuity design (RDD) based on close elections to estimate the rents from a seat in the U.S. Congress between 1850 and 1880. Using census data, we compare wealth accumulation among those who won or lost their first race by a small margin. We find evidence of significant returns for the first half of the 1860s, during the Civil War, but not for other periods. Those who won their first election by a narrow margin and served during the period 1861–1866 accumulated, on average, almost 40% more wealth between 1860 and 1870 (roughly $800,000 in present-day values) relative to those who ran but did not serve. We also find that wealth accumulation was particularly large for congressmen who represented states most involved in military contracting and those who served during the Civil War in committees that were responsible for most military appropriations. We hypothesize that increased opportunities from the sudden spike in government spending during the war and the decrease in control by the media might have made it easier for incumbent congressmen to collect rents.
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Uncertainty and Roll-Call Voting in Lame-Duck Sessions of the U.S. House, 1969–2010
Timothy Nokken
Legislative Studies Quarterly, November 2013, Pages 571–591
Abstract:
Lame-duck sessions of Congress have become increasingly common of late. Such sessions are marked by higher levels of ideological and participatory shirking among departing members, creating a more uncertain legislative environment. I investigate the consequences of such shirking on coalition formation and roll-call behavior. I analyze House roll-call votes held in the 12 congresses that convened lame-duck sessions from 1969 to 2010 (91st to 111th Congresses) to assess how roll-call behavior changes across sessions. I find subtle but statistically significant changes across sessions consistent with claims regarding greater uncertainty in roll-call voting in lame-duck sessions.
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Why does bureaucratic corruption occur in the EU?
Urs Steiner Brandt & Gert Tinggaard Svendsen
Public Choice, December 2013, Pages 585-599
Abstract:
Why does bureaucratic corruption occur in the EU system? Several examples suggest that bureaucratic corruption exists and that the Commission’s anti-fraud agency, OLAF, is not a fully independent authority. We thus develop a novel interpretation of the principal-supervisor-agent model to cope with non-independent anti-fraud units. This model shows that corruption is likely to occur when the expected value to the client from bribing the agent is larger than the expected value to the principal of truth-telling by the supervisor. Overall, this analysis points to the risks of flawed incentives and the lack of institutional independence among principal, agent, supervisor and client. Our main policy recommendations as a result of these findings are that OLAF should be placed outside the Commission, and that whistleblowers should receive adequate protection.