Moyers: What Economic Sleuths Can Tell Us About Our Corrupt Politics
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When it comes to legal corruption – the influence of big money in politics – a popular approach is to study stock prices. Researchers look at how a lawmaker’s changing fortunes affect the share prices of companies or industry groups to which he or she is linked. “What people have documented is that there is value to making campaign contributions, there is value to lobbying,” Mara Faccio, a professor of finance at Purdue University, tells Moyers & Company. “So, whenever a political tie vanishes, the value of a company is affected quite drastically.”
Faccio’s research uses a narrow definition of politically connected firms, only including those with at least one current officeholder on their boards of directors. Congressional rules make that situation a rarity (our legislators tend to get those cushy board positions after they leave office). But other researchers have looked at how companies connected to legislators through lobbying or campaign contributions fared when those lawmakers’ situations changed.
In one of the first of these studies, Brian Roberts looked at how the markets reacted to the sudden death of Senator Henry “Scoop” Jackson in 1983 ($$). Jackson, the senior senator from Washington, had been a huge presence in the upper chamber, having served for three decades at the time of his death. A notoriously hawkish Democrat, Jackson chaired the Armed Services Committee. When he died, Sam Nunn (D-GA), took his gavel. Roberts found that the share prices of companies with ties to Jackson tanked at the news, while firms that had close relationships with Nunn saw significant gains.
Edward Miguel says that these findings have been replicated again and again. He described a study of the market before and after Vermont Senator Jim Jeffords left the Republican Party in 2001, handing control of the Senate to the Dems. “In the days after Jim Jeffords’ announcement,” says Miguel, “firms that had given heavily to Republicans in the previous election cycle lost value on the New York Stock Exchange,” while share prices for companies that had given to Democrats spiked.
A similar study conducted by three researchers at the University of North Carolina found that the stock value of companies with former Republican lawmakers on their boards increased by an average of three percent when the Supreme Court handed the 2000 election to George W. Bush, while companies with former Democratic politicians on their boards dropped by the same amount.
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http://billmoyers.com/2013/08/26/what-economic-sleuths-can-tell-us-about-our-corrupt-politics/
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