Do Powerful Politicians Cause Corporate Downsizing?
Speaker
Abstract
| This paper employs a new empirical approach for identifying the impact of government spending on the private sector. Our key innovation is to use changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, we show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity. These corporate behaviors follow both Senate and House committee chair changes, are partially reversed when the congressman resigns, and are most pronounced among geographically concentrated firms. The effects are economically meaningful and the mechanism - entirely distinct from the more traditional interest rate and tax channels - suggests new considerations in assessing the impact of government spending on private sector economic activity. |
| Lauren Cohen is an Assistant Professor in the Finance area at Harvard Business School and a Faculty Research Fellow at the National Bureau of Economic Research. Prior to joining HBS, Professor Cohen was an Assistant Professor of Finance at Yale University, in the School of Management, where he was on faculty from 2005-2007. Professor Cohen’s research focuses on empirical asset pricing, behavioral finance, and portfolio choice. He has investigated the effect of limited attention on price evolution and studied the information in shorting for future returns. His recent work examines the role of social networks in information transmission in equity markets. His research has been published in the Journal of Political Economy, Journal of Finance, and the Review of Financial Studies. Professor Cohen received a Ph.D. in finance and an MBA from the University of Chicago in 2005, and a B.S.E. from Wharton and a B.A. in economics from the University of Pennsylvania in 2001. |
| The Erasmus Finance Seminar is jointly sponsored by ERIM and the Tinbergen Institute. |
| Contact information: |
| Viorel Roscovan |
