Firms and Politics
Friday, Jan. 3, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: Jonathan Karpoff, University of Washington
Do Political Boundaries Affect Firm Boundaries?
AbstractWe investigate how changes in legislative boundaries affect firms in the U.S. Every decade, states redraw their congressional districts to account for changing population dynamics within the state and across the country. We find that redistricting imposes considerable costs on firms that operate in districts whose boundaries change. At the state level, we document that firm-level uncertainty significantly increases when new district lines are drawn. Additionally, firms affected by these new boundaries experience negative abnormal equity returns. Within a state, we examine firms who experience a change in representation due to redistricting relative to those firms whose representation is unaffected. We find that redistricted firms decrease capital expenditures and investment in R&D, and there is a higher likelihood of subsequently relocating. These effects are stronger for standalone firms. Taken together, this paper provides evidence about the link between political boundaries and the boundaries of firms.
Who Pays a Visit to Brussels? Cross-Border Firm Value Effects of Meetings with European Commissioners
AbstractAnalyzing data on meetings of U.S. company representatives with European Commission (EC) policy-makers, we present novel evidence on the value of political access in a cross-border setting. Meetings with Commissioners are associated with substantial positive abnormal equity returns. We then study channels of value creation. Using a dataset of merger cases at the EC, we find that U.S. firms with political access are more likely to receive a favorable decision than their peers without meetings. We show that a firm's sensitivity to the European corporate tax environment is a strong predictor of the likelihood of the firm seeking political access at the EC. Our work contributes to the scant literature on multinational firms' efforts to influence politicians in an international setting.
- G3 - Corporate Finance and Governance