Past research shows that members of Congress are informed traders, i.e., that they earn abnormal returns while in office. This important research does not identify whether being elected leads to informed trading or whether informed traders are selected into office. We try to provide a partial answer to this question by looking at whether new members of Congress were informed traders prior to being elected and how their portfolio performance changes after election and appointment to different types of committees. Due to data limitations our analysis focus on the pre-congressional (i.e., election) and congressional (i.e., post-election) common stock trades made by newly elected members of Congress from 2004-2010. We find weak evidence of informed trading for the pre-Congress period, suggesting that informed traders are not being selected into office. When combined with our finding that the portfolios of members serving on powerful committees outperform the market during their second term in office, this provides additional evidence that serving on influential committees is the mechanism by which members of Congress earn abnormal returns.

Purpose The purpose of this study is to investigate the effect of corruption on stock returns in the USA. In particular, this study examines the relationship between corruption in a state (i.e. local corruption) and stock returns of firms headquartered in that state (i.e. local returns). Design/methodology/approach This paper uses the Fama–MacBeth two-step regressions. In the first step, the authors estimate the coefficients on the market, size, value and momentum factors for individual stocks. In the second step, they use those coefficients along with the corruption score of the state where stocks are headquartered to explain stock returns. Findings This paper finds that corruption in a state adversely affects stock returns of firms headquartered in that state. It further documents that the effect of corruption on stock returns is limited to geographically concentrated firms. Originality/value To the best of the authors’ knowledge, this paper is the first to document the effect of state-level corruption on individual stock returns in the USA using the Fama–MacBeth regressions. This study contributes to the literature by documenting the effect of local corruption on local stock returns in a low corruption country.

The impacts of various economic and institutional factors transcend the borders of a nation and flow over to adjacent countries. Past research has found that there are spatial spillovers in economic growth, development of institutions, governance quality and institutional quality. This paper conducts a study on the direct and indirect effects of debt relief from the Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) programs. The IMF and the World Bank provide debt relief to the member countries that have passed the Decision Point of the HIPC Process. Using the Spatial Durbin Model (SDM) model, this study shows that there are negative spatial spillovers of the impacts of being a HIPC member on neighboring countries.

Purpose A number of political economy concerns are associated with the provision of foreign aid to developing economies. These concerns suggest that foreign aid is likely to have harmful effects on a recipient’s institutional quality, and that attempts to give aid conditional on policy and institutional reforms are unlikely to succeed. Established in 1996, the Heavily Indebted Poor Country (HIPC) Initiative is a comprehensive, structured attempt to provide multilateral foreign aid conditional on reforms in recipient countries. The purpose of this paper is to evaluate its effectiveness at affecting institutional reform in participating countries. Design/methodology/approach The authors document how participating countries fared in terms of the quality of their policies and institutions. The authors employ the Fraser Institute’s Economic Freedom of the World index as a measure of economic institutions, and the Freedom House political rights (PR) and civil liberties indices as measures of PR and protections. Based on these measures, the authors report unconditional statistics (e.g. average changes) and also regressions of changes in the measures on HIPC Initiative aid allocations and other controls. Findings The authors find that most participating countries experienced either meager increases or outright decreases in institutional quality. The regression results provide no evidence that the Initiative affects meaningful reforms. Originality/value The potential for foreign aid to have deleterious effects on the institutional quality of recipient countries has been of increasing concern to students of economic development. Such effects can have important implications for entrepreneurial activity in these countries. The HIPC Initiative is specifically designed to acknowledge and, indeed, overcome these concerns, leading to actual increases in institutional quality of recipient countries. To the authors’ knowledge, this work is the first to assess whether the promise of the HIPC Initiative is being fulfilled.

The Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) were created by the IMF and World Bank to help low-income countries reduce their debt burden and to facilitate reaching the Millennium Development Goals. After entering the decision point of the HIPC Initiative stage, countries receive interim aid while following a strategic path to improve their macroeconomic stability via structural reforms. Many countries reached the completion point of the HIPC Initiative stage within a few years, receiving a substantial amount of debt relief. Other countries remained in the interim period for almost a decade. We explore the relationship between the level of corruption in HIPC countries and the length of time between the decision and the completion point. We use survival-time models to estimate the effect of various characteristics of the countries on the probability that each country will exit the interim period. The results show that countries with lower corruption and better rule of law complete the HIPC process faster.