The returns from rent‐seeking: campaign contributions, firm subsidies and the Byrd Amendment

Abstract

This is the first empirical study to examine Congressional support of a new law that distributes antidumping duties to protected firms. Because the law produces a transparent measure of how much each firm was rewarded for its efforts to secure the bill's passage, it provides researchers with a unique opportunity to study the link between the expected financial returns to firms, campaign contributions, and Congressional behaviour. Our results indicate that campaign contributions from beneficiaries increased the likelihood that lawmakers would sponsor the law, while contributions from the law's beneficiaries increased with the rewards they expected to receive. JEL classification: F13, D72Les rendements de la chasse aux rentes : contributions aux campagnesélectorales, subventions aux entreprises, et l'Amendement Byrd. Ceci est la premièreétude empirique examinant le support par le Congrès américain d'une nouvelle loi qui distribue les droits anti-dumping collectés aux entreprises protégées. Parce que la loi produit une mesure transparente de la récompense verséeà une entreprise pour ses efforts de lobbying afin de s'assurer que la loi est mise en vigueur, cela permet aux chercheurs d'étudier le lien entre les rendements financiers anticipés pour les entreprises, leurs contributions aux campagnesélectorales, et les actions du Congrès. Les résultats indiquent que les contributions aux campagneś electorales en provenance des bénéficiaires potentiels accroissent la probabilité que les législateurs vont supporter la loi, et que les contributions en provenance des bénéficiaires de la loi s'accroissentà proportion que la taille de la récompense anticipée s'accroît.

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).…”

“…For instance, contributions influence senate roll call vote (Liebman & Reynolds, 2006;Mian, Sufi, & Trebbi, 2010;Steagall & Jennings, 1996) while political connections shape government subsidy decisions (Lee & Baik, 2010;Wu & Cheng, 2011) and protect firms from competition (Evans & Sherlund, 2011). It is therefore plausible to argue based on the literature that informational strategies and any other strategies targeted at policy influence are usually successful.…”

The Welfare Effects of the Byrd Amendment

“…On the empirical side, Reynolds (2006), Liebman and Reynolds (2006) show that the passage of the law had an effect on American industries' behavior, with more AD cases being filed and an intensified lobbying activity which might suggest that the domestic industries try to increase their chances of not only getting the protection through the AD cases, but also the tariff proceeds from them. In this paper, I theoretically model the welfare effects of the Byrd Amendment by taking into account its implications on the petitioning domestic industries, consumers, and exporters.…”

Political activity and firm performance within nonmarket research: A review and international comparative assessment

“…As noted by Liebman and Reynolds (2006), campaign contributions are able to influence legislation by increasing the likelihood that beneficiary politicians would sponsor laws favourable to their contributors. Regulation begets CPA, and this perhaps confirms the finding that highly regulated industries are more politically active (Hillman, 2005;Kim, 2008).…”

“…However policy performance, which measures the performance of firms in the policy arena, is the least studied of all the outcomes in the literature. Articles examining this type of outcome either study the voting patterns of politicians (Liebman & Reynolds, 2006), the difference between proposed and adopted agency rules (McKay & Webb-Yackee, 2007), government bailouts (Faccio, Masulis, & McConnell, 2006) or the outcomes of petitions (Lee & Baik, 2010;Marsh, 1998).…”