Discussion Paper Details

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Title: Power, Scrutiny, and Congressmen's Favoritism for Friends' Firm

Author(s): Quoc-Anh Do, Yen-Teik Lee, Kieu-Trang Nguyen and Bang Dang Nguyen

Publication Date: August 2020

Keyword(s): close election, congressmen, favoritism, political connection, Power, RDD and scrutiny

Programme Area(s): Financial Economics, Labour Economics and Public Economics

Abstract: Does more political power always lead to more favoritism? The usual affirmative answer overlooks scrutiny's role in shaping the pattern of favoritism over the ladder of power. When attaining higher-powered positions under even stricter scrutiny, politicians may reduce quid-pro-quo favors towards connected firms to preserve their career prospect. Around close Congress elections, we find RDD-based evidence of this adverse effect that a politician's win reduces his former classmates' firms stock value by 2.8%. As predicted, this effect varies by cross-state scrutiny, politicians' power, firms' size and governance, and connection strength. It diminishes as a politician's career concern fades over time.

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Bibliographic Reference

Do, Q, Lee, Y, Nguyen, K and Nguyen, B. 2020. 'Power, Scrutiny, and Congressmen's Favoritism for Friends' Firm'. London, Centre for Economic Policy Research.