Guilty by Political Association: The Impact of Political Scandals on Connected Firms

Authors

April KnillFollow
Baixiao LiuFollow
John J. McConnellFollow
Cayman SeagravesFollow

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841

Abstract

Over the period 1992–2018, we investigate the economic impact of scandal-tainted congresspersons on politically connected firms. Following the first media report of a scandal, firms connected to the scandal-tainted congressperson experience a relative loss in market value. The loss manifests through both a reputational spillover and a reduced effectiveness of the congressperson in granting political favors to firms. Our findings indicate an undocumented cost of corporate political connections—the loss that occurs when a connected politician is caught up in a scandal.

Recommended Citation

Knill, April; Liu, Baixiao; McConnell, John J.; and Seagraves, Cayman (2024) "Guilty by Political Association: The Impact of Political Scandals on Connected Firms," Journal of Law and Economics: Vol. 67: No. 4, Article 4.
Available at: https://chicagounbound.uchicago.edu/jle/vol67/iss4/4