Money and muscle: corporate political power and government subsidies
Reza Houston, Stephen P. Ferris, Blake RayfieldPurpose
We develop a firm-level measure of corporate political power and examine whether gains and losses in firm political power systematically affect future subsidy receipt.
Design/methodology/approach
We construct novel measures of corporate political power by aggregating the personal political power of US legislators to whom firms gain access through PAC contributions. We decompose firm-level political power into local and national components based on where firms operate. We examine how political power affects subsequent subsidy receipt.
Findings
Firms with greater political power receive larger government subsidies across federal, state and local levels. Subsidy receipt increases when firms gain political power and vice versa. Both local and national political connections matter. Changes in political power have causal effects on future subsidy outcomes.
Practical implications
Our findings highlight how political connections shape subsidy allocation, which is useful to policymakers concerned with transparency and fairness in government support. Regulators can use these measures to detect potential favoritism. Firms can gain insight into how political strategy influences access to public resources.
Social implications
Political power can redirect public resources toward well-connected firms, widening inequality and distorting market competition. This raises concerns about fairness, democratic accountability and public trust in government.
Originality/value
We introduce a novel, firm-level measure of corporate political power that links firms' political access to the quantified power of individual legislators. Our approach integrates multiple dimensions of legislative influence and distinguishes between local and national political power.