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Is the revolving door of Washington a back door to excess corporate returns?

Author

Listed:
  • Mehmet I. Canayaz

    (Said Business School, University of Oxford)

  • Jose V. Martinez

    (School of Business, University of Connecticut)

  • Han N. Ozsoylev

    (Said Business School, University of Oxford and College of Administrative Sciences and Economics, Koç University)

Abstract
In this paper, we look into the so-called "revolving door of Washington", which is the movement of individuals between federal government positions and jobs in the private sector, and examine its link to long-run stock returns. We find that firms where current public officials become future employees outperform other firms by a statistically significant 7.43% per year in terms of four-factor alpha. This result is robust to different weighting methodologies and risk adjustments, and to plausible reverse causality arguments. We also show that firms receive more valuable government contracts from a government agency when a future firm employee is holding a post at that agency. Such financial gains are significantly reduced during periods in which presidential executive orders restrict revolving door movements. Our results are consistent with the notion that some public officials could be favoring certain companies while in office with a view to gaining future corporate employment.

Suggested Citation

  • Mehmet I. Canayaz & Jose V. Martinez & Han N. Ozsoylev, 2015. "Is the revolving door of Washington a back door to excess corporate returns?," Koç University-TUSIAD Economic Research Forum Working Papers 1507, Koc University-TUSIAD Economic Research Forum.
    • Handle: RePEc:koc:wpaper:1507
    as

    Download full text from publisher

    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1507.pdf
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    References listed on IDEAS

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    Cited by:

    1. Natalia Lamberova & Konstantin Sonin, 2018. "Economic transition and the rise of alternative institutions : Political connections in Putin's Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 26(4), pages 615-648, October.
    2. Stephen P. Ferris & Reza Houston & David Javakhadze, 2019. "It is a Sweetheart of a Deal: Political Connections and Corporate‐Federal Contracting," The Financial Review, Eastern Finance Association, vol. 54(1), pages 57-84, February.

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    More about this item

    Keywords

    Corporate political connections; government contracts; regulatory capture; revolving door.;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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