Quarterly Journal of Political Science > Vol 9 > Issue 2

Political Capital: Corporate Connections and Stock Investments in the U.S. Congress, 2004-2008

Andrew C. Eggers, London School of Economics, United Kingdom, a.c.eggers@lse.ac.uk , Jens Hainmueller, Department of Political Science, Stanford University, USA, jhain@stanford.edu
 
Suggested Citation
Andrew C. Eggers and Jens Hainmueller (2014), "Political Capital: Corporate Connections and Stock Investments in the U.S. Congress, 2004-2008", Quarterly Journal of Political Science: Vol. 9: No. 2, pp 169-202. http://dx.doi.org/10.1561/100.00013077

Publication Date: 18 Jun 2014
© 2014 A. C. Eggers and J. Hainmueller
 
Subjects
Congress,  Political corruption,  Representation,  Political economy
 

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In this article:
1. Political Relationships and Politicians' Investments 
2. Data and Measures of Member-Firm Connections 
3. Political Connections and Portfolio Performance 
4. Explaining the Local Investing Advantage of Congress 
5. Discussion 
References 

Abstract

Recent research suggests that, public perceptions notwithstanding, members of Congress are rather mediocre investors. Why do the consummate political insiders fail to profit as investors? We consider various explanations that pertain to members' political relationships to public firms. We show that members of Congress invest disproportionately in local firms and campaign contributors, which suggests that overall underperformance cannot be explained by the absence of political considerations inmembers' portfolio decisions. These connected investments (and particularly local investments) generally outperform members' other investments, which suggests that poor performance is not explained by an excessive political skew in members' portfolios. It appears that members of Congress earn poor investing returns primarily because their non-connected investments perform poorly, perhaps due to the usual failings of individual investors; a combination of political and financial considerations may explain why they do not make more extensive use of their political advantages as investors.

DOI:10.1561/100.00013077