Abstract
This paper aims to identify potential benefits obtained by companies for their contributions to political campaigns. We used an extensive database with information on donations to House, Senate, and Presidency candidates in the 2006 and 2010 elections. The variables of interest analyzed were the cumulative abnormal return by the time the results of each election became known and the return on equity in the year following the elections. Panel regressions were estimated as ordinary least squares, and fixed effects of year and industry were included. The results indicate that not only does the market anticipate future benefits for companies that contributed to campaigns—which is reflected in positive cumulative abnormal returns at the announcement of the election results—but these companies also have higher returns on equity than those that were not involved in the political process. In addition, donations to winning candidates generate higher returns than donations to losing candidates, which supports the return of favors hypothesis. Similarly, contributions to candidates affiliated with the president’s coalitions also had a higher impact when compared to donations to political opponents, as did donations to left-wing parties.
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Notes
In May of 2001, senator James Jeffords left the Republican Party, eventually handing the control of the U.S. Senate over to the Democrats.
Soft money refers to the money given directly to political parties, unregulated by the Federal Election Commission (FEC) on hard money donations. The political reform introduced in 2002 forbids soft money contributions.
Including natural persons and legal entities. Source: Brazilian Supreme Electoral Court (TSE).
Both values corrected by IPCA for July/2014.
The first one was the slush fund established by PC Farias, treasurer during president Collor’s term, and the second one was the corruption scheme involving lawmakers from the congressional budget committee, known as “the Seven Dwarfs”, and a gang of corrupt contractors.
The federal government budget committee increased the transfer of funds to the Campaign Fund by 300%, which went up from R$ 289 million to R$ 867.5 million in 2015.
System according to which the number of seats for each party follows the proportion of votes obtained and the order of elected candidates is defined by the amount of votes each of them received.
Values adjusted by the purchasing power parity. Source: Folha de São Paulo, 2006.
Donation made by Vale Manganês S/A.
We have also tested the event window of one day before and ten after the results, and one day before e one after (CAR (− 1,10) and CAR (− 1,1)). Results are reported in the “Appendix”.
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Davi, M.G., Portugal, M.S. Politics and finance: a study on the impact of campaign donations on Brazilian firms. Empir Econ 58, 1057–1105 (2020). https://doi.org/10.1007/s00181-018-1594-5
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DOI: https://doi.org/10.1007/s00181-018-1594-5