This paper investigates the value of firm political connections using a regression discontinuity design in a sample of close, off-cycle U.S. congressional elections. I compare firms donating to ...winning candidates and firms donating to losing candidates and find that postelection abnormal equity returns are 3% higher for firms donating to winning candidates. Connections to politicians serving on powerful congressional committees, such as appropriations and taxation, are especially valuable and impact contributing firms sales. Firms' campaign contributions are correlated with other political activities such as lobbying and hiring former government employees, suggesting that firms take coordinated actions to build political networks.
ABSTRACT
We study how parent liability for subsidiaries' environmental cleanup costs affects industrial pollution and production. Our empirical setting exploits a Supreme Court decision that ...strengthened parent limited liability protection for some subsidiaries. Using a difference‐in‐differences framework, we find that stronger liability protection for parents leads to a 5% to 9% increase in toxic emissions by subsidiaries. Evidence suggests the increase in pollution is driven by lower investment in abatement technologies rather than increased production. Cross‐sectional tests suggest convexities associated with insolvency and executive compensation drive heterogeneous effects. Overall, our findings highlight the moral hazard problem associated with limited liability.
Powerful politicians can interfere with the enforcement of regulations. As such, expected political interference can affect constituents’ behavior. Using rotations of Senate committee chairs to ...identify variation in political power and expected regulatory relief, we study powerful politicians’ effect on consumer lending to communities protected by fair-lending regulations. We find a 7.5% reduction in credit access to minority neighborhoods in states with new committee chairs. Larger reductions occur in Community Reinvestment Act-eligible neighborhoods and when Senators serve on committees that oversee the enforcement of fair-lending laws. Banks headquartered in powerful Senators’ states are responsible for the reduction in credit access.
From 2010 to 2015, a group of traders illegally accessed earnings information before their public release by hacking several newswire services. We use this scheme as a natural experiment to ...investigate how informed investors select among private signals and how efficiently financial markets incorporate private information contained in trades into prices. We construct a measure of qualitative information using machine learning and find that the hackers traded on both qualitative and quantitative signals. The hackers’ trading caused 15% more of the earnings news to be incorporated in prices before their public release. Liquidity providers responded to the hackers’ trades by widening spreads.
While these international transactions potentially bring significant capital and investment opportunities for the Canadian public, they may force Canadian firms to bear significant political risk ...from politically unstable markets.
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