It is a Sweetheart of a Deal: Political Connections and Corporate‐Federal Contracting

28 Pages Posted: 8 Jan 2019

See all articles by Stephen P. Ferris

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Reza Houston

Indiana State University - Scott College of Business

David Javakhadze

Florida Atlantic University

Date Written: February 2019

Abstract

We examine whether political connections measured by political contributions influence the choice of terms included in government contracts awarded to firms. We construct an index of four “sweetheart” contract terms and find that firms making larger political contributions more frequently have these favorable terms included in their contracts. We also find that political contributions have explanatory power for contract design after controlling for lobbying, negotiation power, and the employment of former government employees. These results are robust to alternative model specifications, different estimation techniques, various variable measurements, and adjustments for possible endogeneity.

Keywords: contracting, political connections, GT34

JEL Classification: G32, G38

Suggested Citation

Ferris, Stephen P. and Houston, Reza and Javakhadze, David, It is a Sweetheart of a Deal: Political Connections and Corporate‐Federal Contracting (February 2019). Financial Review, Vol. 54, Issue 1, pp. 57-84, 2019, Available at SSRN: https://ssrn.com/abstract=3311674 or http://dx.doi.org/10.1111/fire.12181

Stephen P. Ferris (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

Reza Houston

Indiana State University - Scott College of Business ( email )

800 Sycamore Street
Terre Haute, IN 47809
United States

David Javakhadze

Florida Atlantic University

Boca Raton, FL 33431
United States

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