It pays to be a crony: on the politician-businessman nexus in the U.S.

March 06, 2018 12:15 am | Updated 12:15 am IST

Access to politicians gives big businessmen the chance to influence government policy in a manner that is beneficial to them. For instance, government regulations are often framed to serve the interests of certain companies that are close to the government and harm competitors. Even government contracts, which are worth many billions each year, are handed out to parties who offer the highest kickbacks to politicians. So, it is no surprise when corporate executives rush to the corridors of power to donate massive sums of money to get what they want. Yet, except perhaps after a massive fraud that gets exposed by a whistle-blower, it is often hard to find solid evidence to prove the nexus between politicians and businessmen.

To help us get closer to the truth, a 2017 paper circulated by the National Bureau of Economic Research, titled All the President’s Friends: Political Access and Firm Value , tries to offer some empirical evidence. The authors, Jeffrey Brown and Jiekun Huang, studied data on visitors to the White House from 2009 to 2015 and found in the database the names of several corporate executives from S&P 1500 companies.

They then studied the performance of the stocks of the companies whose executives frequented the White House. This was to see if executive visits to the White House had any positive impact on stock prices. It was found that stock prices indeed showed abnormal returns just around the time when their company executives visited the White House. This, the authors argue, is likely because these companies received political favours after meeting the President’s staff. In fact, they say, the companies received relief from stringent regulations just after meeting White House officials.

Brown and Huang also found that executives belonging to companies that contributed heavily to former U.S. President Barack Obama’s election campaign were more likely to be granted access to the White House during his tenure. Interestingly, stocks of companies that did well after receiving favours under the Obama presidency began to underperform the stocks of similar companies after the surprise election victory of Donald Trump in November 2016. This probably suggests that investors expected these firms, which benefited under the rule of Obama, to lose out on such favours under the Trump presidency.

Top News Today

Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.