Leah Stein, “‘Ex-Post’ Campaign Contributions: Why Firms Donate More After Receiving Government Subsidies”
I argue that firms are more politically active when cannot use market strategies to navigate their political environment. I test my argument by examining firms’ campaign contributions before and after receiving major corporate subsidies. Firms solicit state governments for subsidies for major capital investments, such as manufacturing plants or corporate headquarters, in exchange for creating jobs. When firms negotiate subsidies, they leverage their market power by threatening to exit the market. After firms accept a subsidy and invest in the state, firms lose their bargaining power. Instead, firms navigate their political environment by investing in political alliances. I find that firms are 17 percent more likely to give contributions in the four years after accepting a subsidy. This effect is driven equally by firms that are established in the state and firms that newly invest in the state. Firms predominately donate to state legislators that serve on important committees.
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