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CFGE-11: Politics and the economy
Lobbying Externalities and Competition
Tilburg University, Netherlands, The
I show that lobbying generates negative externalities, which affect non-lobbying companies. When a piece of new legislation passes in Congress, non-lobbying companies in aggregate lose $1.9bn in market value. I obtain this result using a novel dataset combining comprehensive information on corporate lobbying activity with congressional activity on bills. To explain why negatively affected companies do not lobby, I identify two frictions that hinder them. First, non-lobbying companies do not represent enough voting power to support politicians in the elections. Second, trade associations, which could represent their collective interests, are captured by companies that lobby individually. I demonstrate this mechanism using unique hand-collected data on membership in the main trade associations. These findings have important policy implications: they highlight the economic mechanisms which could be targeted by policies regulating corporate lobbying.
The Externalities of Corruption: Evidence from Entrepreneurial Firms in China
1Stockholm School of Economics, Sweden; 2Indiana University; 3Renmin University; 4Xiamen University
Exploiting the Chinese anti-corruption campaign as an exogenous shock to corruption, we show that following a decrease in corruption, the performance of firms in highly corrupt industries improves. Small firms appear to benefit to a larger extent. We identify the channels through which corruption hampers firm performance. Following the anti-corruption campaign, the allocation of capital and labor becomes more efficient in ex ante highly corrupt industries. Firms in these industries experience productivity gains, easier access to debt financing, and higher growth of sales than firms in other industries. Overall, our results suggest that corruption creates negative externalities.
Private Credit Under Political Influence: Evidence from France.
1CNRS, France; 2CEPII; 3Princeton; 4HEC
Politicians influence the lending decisions of independent private banks to increase their chances of being re-elected, in exchange of access to the profitable markets of local government debt market. Using the French credit registry between 2007-2017 and variations in politicians' ability to influence allocation of public debt, we find that short-term credit increases by 9% the year before the election if the election is contested. Consistent with banks altering their credit allocation to curry favor with their political clients in an attempt to obtain reciprocal favors in return, we find that this higher credit is entirely driven by banks with public entities loans in their portfolio and is associated with higher subsequent market shares in this debt market in case of reelection of the incumbent. Our results point at the existence of political influence on banks, even in a democratic environment with low corruption and a strict separation between private banks and politicians.
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