Lobbying Externalities and Competition

Job Market Paper

Abstract I show that lobbying generates negative externalities, which affect non-lobbying companies. When a piece of new legislation passes in Congress, non-lobbying companies in aggregate lose $1.9bn in market value. I obtain this result using a novel dataset combining comprehensive information on corporate lobbying activity with congressional activity on bills. To explain why negatively affected companies do not lobby, I identify two frictions that hinder them. First, non-lobbying companies do not represent enough voting power to support politicians in the elections. Second, trade associations, which could represent their collective interests, are captured by companies that lobby individually. I demonstrate this mechanism using unique hand-collected data on membership in the main trade associations. These findings have important policy implications: they highlight the economic mechanisms which could be targeted by policies regulating corporate lobbying.

Can be downloaded Here

Presented at

Seminars & Brownbags: USC Marshall, Chicago Booth, Rochester Simon, Arizona State Carey, Texas A&M Mays, Notre Dame Mendoza, HEC Paris, INSEAD, Oxford Saïd, Stockholm School of Economics, Copenhagen Business School, BI Norway, EIEF, Amsterdam Business School

Conferences: SFS Cavalcade Asia-Pacific, EFA, LMU CCFC, HEC PhD Workshop

Underwriter Bargaining Power and Corporate Bond Contracts

with Alberto Manconi and Luc Renneboog

Abstract Using a novel empirical approach, based on a new measure of bargaining power, we show that powerful underwriters drive corporate bond contracts in their favor. Our measure of underwriter power is based on the comparative ability of banks to place bonds. The key feature of our approach is that bargaining power varies for a given underwriter facing different bond issuers at a given point in time, allowing us to separate the effects of bargaining power from those of reputation and certification with a fixed effects strategy. We find that bargaining power increases both underwriter fees and bond offering yields, to an increased combined cost of USD 1.5 million, or 7% of the average costs for the issuer. We rule out a number of alternative mechanisms, notably issuer-underwriter “loyalty”. Our findings are in line with the predictions of the market dominance and agency theories.

Can be downloaded Here

Featured at Harvard Law School Forum on Corporate Governance and Financial Regulation

Presented at

Seminars & Brownbags: UBC Sauder, UWash Foster, Alberta School of Business, EBRD London, and Tilburg University

Conferences: FIRS, Oxford Reputation Symposium, LBS Trans-Atlantic Doctoral Tutorial, EBRD London, 6th ACFC Manchester

Are Star Lawyers Also Better Lawyers?

with Allen Ferrell, Alberto Manconi, William Powley and Luc Renneboog

Abstract We study the performance of dominant law firms ("stars") in litigation brought against publicly traded corporations. We use insurance coverage as a benchmark for expected settlement amounts, to separate to what extent (a) stars reach more favorable settlements on any lawsuit (a performance or treatment effect) or (b) stars are retained in lawsuits where a favorable settlement is ex ante more likely (a selection effect). Our findings indicate the latter, and that star firms have an economically small impact on settlement amounts. This result is not explained by measurement error or over-/under-insurance. The extent to which stars are associated with improvements in corporate governance also appears limited. The stars' large market share and the high fees they earn may be justified by their ability to reduce uncertainty about the lawsuit outcome or by frictions, such as aggressive marketing and limited client sophistication and bargaining power, which limits the stars’ clients’ ability to turn to other law firms.

Presented at

Seminars & Brownbags: USC Marshall

Conferences: NBER Law and Economics (Scheduled)