Essays On Corporate Policies And Lobbying

Do Firms Gain from Lobbying? Evidence from Congressional Committee Assignments: Estimates on firm outcomes from lobbying are difficult to obtain due to a strong selection into lobbying; the average lobbying firm has roughly ten times the assets of the average nonlobbying firm. In order to separate the effect from lobbying, I exploit the quasi-random variation in lobbying induced by Congress members' assignment to powerful tax writing committees. I find that smaller firms are more likely to lobby if a Congress member from their state or district is assigned to one of these committees. Lobbying by these smaller firms results in significantly higher employment and sales; lobbying by larger firms results in a lower tax rate. Disappearing and Reappearing Dividends (with Roni Michaely): We decompose the decrease (1970s-2000) and subsequent recovery (2000-current) in the percent of dividend-paying firms. Changes in firm characteristics and the proclivity to pay dividends (probability of paying dividends conditional on characteristics) each drive half of the dividend disappearance. By contrast, a higher proclivity to pay dividends drives 82% of the reappearing dividends. The remaining reappearance is driven by a single characteristic: reduced earnings volatility. Newly listed and delisted firms drive these trends, rather than dividend omissions or initiations. Finally, total payout (dividends + repurchases) disappears to a substantially lesser extent than dividends, indicating some substitution between dividends and repurchases. A Classification Framework for Stablecoin Designs (with Kevin Sekniqi and Emin Gun Sirer): Although most people are aware of Bitcoin, especially after its meteoric rise in price at the end of 2017, the vast majority of people choose not to hold or use Bitcoin or similar cryptoassets. Stablecoins promise to bridge fiat currencies with this emerging world of cryptocurrencies. They provide a way for users to take advantage of the benefits of digital currencies, such as ability to transfer assets over the internet, credibly commit to minting schedules, and enable new asset classes, while also partially mitigating their volatility risks. In this paper, we systematically discuss general design, decompose existing stablecoins into various component design elements, explore their strengths and drawbacks, and identify future directions.

This dissertation consists of three essays on the subjects of business and politics, with each analyzing key tensions and interactions between various business and political agents. Chapter 1 theorizes about how firms use their business, operations, or market strategy decisions as a lobbying instrument, to influence political decision-makers. I also contrast this with conventional monetary lobbying and determine the reasons why firm may prefer to lobby one way over another. Chapter 2 examines how firms with intrinsically long time-horizons overcome the short-run performance pressures on management through corporate governance. I develop a theory for why long-horizon firms should exhibit greater governance insulation than short-horizon firms, and empirically validate the theory for an important set of anti-takeover provisions. Chapter 3 explores how the durability of policy interacts with the shorter electoral cycle and provides incentives for politicians to engage in wasteful and inefficient policy-making.

Originally published in 2007, The Israel Lobby and U.S. Foreign Policy, by John Mearsheimer of the University of Chicago and Stephen M. Walt of Harvard's John F. Kennedy School of Government, provoked both howls of outrage and cheers of gratitude for challenging what had been a taboo issue in America: the impact of the Israel lobby on U.S. foreign policy. A work of major importance, it remains as relevant today as it was in the immediate aftermath of the Israel-Lebanon war of 2006. Mearsheimer and Walt describe in clear and bold terms the remarkable level of material and diplomatic support that the United States provides to Israel and argues that this support cannot be fully explained on either strategic or moral grounds. This exceptional relationship is due largely to the political influence of a loose coalition of individuals and organizations that actively work to shape U.S. foreign policy in a pro-Israel direction. They provocatively contend that the lobby has a far-reaching impact on America's posture throughout the Middle East―in Iraq, Iran, Lebanon, and toward the Israeli-Palestinian conflict―and the policies it has encouraged are in neither America's national interest nor Israel's long-term interest. The lobby's influence also affects America's relationship with important allies and increases dangers that all states face from global jihadist terror. The publication of The Israel Lobby and U.S. Foreign Policy led to a sea change in how the U.S-Israel relationship was discussed, and continues to be one of the most talked-about books in foreign policy.

My dissertation consists of three essays on lobbying activities by special interest groups. The first paper, "Ex Post Lobbying," systematically documents ex post lobbying, the process by which firms allocate resources during the implementation stage after congressional authorization. Previous theories assume all lobbying is done ex ante, where lobbying activities occur before Congress votes. However, my analysis of over 633,731 lobbying reports demonstrates that almost half of lobbying activity from 1998 to 2012, that targeted specific bills, occurred ex post. I argue that the goal of ex post lobbying is to allow firms to bargain over private benefits that will arise from legislation by targeting regulatory rule-making processes that clarify non-specific parts of bills. Ex post lobbying provides a chance for non-participants in the ex ante lobbying stage to claim their share from government policy.

Corporate lobbyists are everywhere in Washington. Of the 100 organizations that spend the most on lobbying, 95 represent business. The largest companies now have upwards of 100 lobbyists representing them. How did American businesses become so invested in politics? And what does all their money buy? Drawing on extensive data and original interviews with corporate lobbyists, The Business of America is Lobbying provides a fascinating and detailed picture of what corporations do in Washington, why they do it, and why it matters. Prior to the 1970s, very few corporations had Washington offices. But a wave of new government regulations and declining economic conditions mobilized business leaders. Companies developed new political capacities, and managers soon began to see public policy as an opportunity, not just a threat. Ever since, corporate lobbying has become increasingly more pervasive, more proactive, and more particularistic. Lee Drutman argues that lobbyists drove this development, helping managers to see why politics mattered, and how proactive and aggressive engagement could help companies' bottom lines. All this lobbying doesn't guarantee influence. Politics is a messy and unpredictable bazaar, and it is more competitive than ever. But the growth of lobbying has driven several important changes that make business more powerful. The status quo is harder to dislodge; policy is more complex; and, as Congress increasingly becomes a farm league for K Street, more and more of Washington's policy expertise now resides in the private sector. These and other changes increasingly raise the costs of effective lobbying to a level only businesses can typically afford. Lively and engaging, rigorous and nuanced, The Business of America is Lobbying will change how we think about lobbying-and how we might reform it.

I examine how political geography affects firms' cost of debt. Policy risk, measured by proximity to political power reflected in firms' position in the country's political map, is negatively related to corporate bond ratings and positively related to firms' cost of debt. I find firms' policy risk can be mitigated by engaging in corporate political strategies like making campaign contributions or lobbying. Consistent with the view that such political strategies effectively protect firms against uncertainty about future policies, I find policy risk has less of an impact on the cost of debt of firms that support more powerful and well-connected politicians in the legislative co-sponsorship network or that spend more money on lobbying. Using a sample of state pension funds' equity holdings, I find that state pension funds exhibit not only local bias but also bias towards politically connected stocks. These politically connected local firms held by state pension funds do not exhibit better performance compared with their local benchmarks not held by these funds before the holding period, and the overweighting of politically connected local firms is negatively related to pension fund returns. My results do not support the information advantage hypothesis that state pension funds exhibit overweighting of local firms because they have an information advantage about home-state firms. I further examine the factors that explain local bias from political perspectives. My results show that local bias is related to public policy integrity and local politicians' congressional connections.

This thesis consists of three major sudies which consider various strategies undertaken by special interest groups to shape and evade public policy.