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Political Contributions and the Price of Credit Risk: Evidence from Credit Default Swaps
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Political Contributions and the Price of Credit Risk: Evidence from Credit Default Swaps
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Paper
Political Contributions and the Price of Credit Risk: Evidence from Credit Default Swaps
2017
Overview
Firm political contributions are associated with lower credit default swap spreads for contributing firms. To address endogeneity, we employ novel instruments and use a set of exogenous events on campaign contribution restrictions: (a) the passage of the Bipartisan Campaign Reform Act (BCRA) that banned soft money contributions, (b) the Federal Election Commission decision to interpret the BCRA less strictly, (c) the partial reversal of the BCRA and, (d) the McConnell v. FEC Supreme Court decision, which upheld the BCRA. Overall, the evidence suggests that political contributions are valued by credit market participants.
Publisher
Federal Reserve Bank of St. Louis
