Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2006-01-05 Number: 06-002/2 Author-Name: Stijn Claessens Author-Email: sclaessens@worldbank.org Author-Workplace-Name: World Bank Author-Name: Erik Feijen Author-Email: e.h.b.feijen@uva.nl Author-Workplace-Name: Universiteit van Amsterdam Author-Name: Luc Laeven Author-Workplace-Name: World Bank Title: Does Campaign Finance imply Political Favors? 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.

Classification-JEL: D7; G1; G2; G3; P48 Keywords: Campaign Contributions; Elections; Corruption; Preferential Lending File-Url: https://papers.tinbergen.nl/06002.pdf File-Format: application/pdf File-Size: 227166 bytes Handle: RePEc:tin:wpaper:20060002