Campaign Contributions, Access, and Government Contracting

Abstract

It is clear that corporations seek to use campaign contributions to gain government contracts, but despite anecdotes, whether they succeed has been largely ignored in academic studies. In this article, I discuss how campaign contributions may influence contracting and consider the relationship between the donation of campaign contributions and the receipt of government contracts for a sample of firms politically active between 1979 and 2006. The analysis shows that even after controlling for past contracts and other factors, companies that contributed more money to federal candidates subsequently received more contracts. In the conclusion, I discuss the implications of this finding for future research and for reforming the contracting process.

Political Activity and Firm Performance within Nonmarket Research: A Review and International Comparative Assessment

“…Political connections are reported to facilitate trade expansion (Lu, 2011), increase the likelihood of government bailout and allow firms to pay relatively lower premiums for privatization targets (Tu et al, 2013). Campaign contributions are found to increase the number of government contracts received (Witko, 2011), the likelihood to participate in foreign trade missions and the likelihood of legislators to support favourable laws (Liebman & Reynolds, 2006). Lobbying is associated with higher academic earmarks (De Figueiredo & Silverman, 2006), antidumping regulations and increased market value of firms (Marsh, 1998).…”

“…These tactics are meant to provide financial incentives to politicians and enable firms to gain access to decision makers (Witko, 2011). While it may seem that PAC contributions and "soft money" mean the same thing, the two are technically different (Ansolabehere, Synder, & Ueda, 2004).…”

“…The establishment of political connections enables firms to develop social capital which enables them to extract rent from politicians. These rents are in the form of preferential access to finance (Claessens et al, 2008;Yeh et al, 2013) or government contracts (Witko, 2011). Social or political capital is more pronounced in relationship-based capitalisms (Adhikari et al, 2006;Bliss & Gul, 2012;Fraser et al, 2006) where favouritism and cronyism (Johnson & Mitton, 2003) abound.…”

“…Personal level political capital adds value to firms (Sun et al, 2011) and informal connections allow government to confer private benefits on firms (Fraser et al, 2006). Campaign contributions also build social capital and facilitate access to politicians (Kim, 2008;Witko, 2011). Drawing on RBV, some studies argue that the co-optation of politicians into corporate boards adds to the resource base of firms (Hillman, 2005) and allows firms to exploit their policy environments (Niessen & Ruenzi, 2010).…”

“…There are some others which examine academic earmarks (De Figueiredo & Silverman, 2006), anti-dumping proceeds (Lee & Baik, 2010), government contracts (Witko, 2011), bailouts , trade mission participation and regulations (McKay & Webb-Yackee, 2007). It is thus evident that CPA outcomes have been examined using different variables and constructs, but there is still room for the impact of CPA on other performance metrics to be investigated (Lux et al, 2011).…”