Stock ownership US Congress influenced voting on bailout

Mar 29, 2010

(PhysOrg.com) -- Personal investments in the stock of financial institutions by members of the House of Representatives and the Senate of the Unites States was positively associated with these institutions receiving bailout after the subprime mortgage crisis of 2007.

Stock ownership in the financial sector by politicians increased the probability that banks received bailout money, how much support these institutions received and how quickly.

Professor Laurence van Lent of Tilburg University in the Netherlands and Ahmed Tahoun of Manchester Business School (UK) drew these conclusions on the basis of an analysis of 555 publicly listed financial sector firms, 295 of which received government support under the Troubled Asset Relief Program (TARP).

Lobbying is indubitably an important means of exerting influence in politics. In the United States, campaign donations also matter. What has gone virtually unnoticed thus far though is that politicians also are investors. Part of their wealth rests with firms whose wellbeing falls under their legislative and regulatory influence.

Professor of Business Laurence van Lent and his colleague Ahmed Tahoun have now systematically shown for the first time that equity ownership of politicians plays a significant role in their legislative and oversight activities. In particular, was associated with members of the House of Representatives voting in favor of the H.R. 3997 bill on September 29th and H.R. 1424 on October 3rd, 2008 to bailout the financial sector. In the initial vote, the predicted probability of voting for the bailout proposals is 41 percent for non-investors and 58 percent for equity owners. In the final vote, the predicted probabilities are 55 and 69 percent respectively.

Congressional equity ownership in a given firm was also shown to affect the probability of receiving a bailout, the bailout amount and the timing of government support to that firm. Due to their oversight of the Treasury’s implementation of TARP policy, congressional committees with jurisdiction over the finance sector can potentially affect regulatory outcomes. The researchers show that the equity ownership of members of these congressional committees is indeed associated with bailout decisions. It turns out that this effect can be attributed largely to the powerful members in each committee, i.e., the chairs and ranking members.

Explore further: Online retailers have clear advantage by not collecting sales tax

More information: The working paper about this study can be downloaded from the Social Science Research Network at papers.ssrn.com/sol3/papers.cfm?abstract_id=1570219

Provided by Tilburg University

5 /5 (17 votes)
add to favorites email to friend print save as pdf

Related Stories

Banks and bailouts: Playing politics?

Dec 21, 2009

(PhysOrg.com) -- Banks with strong political connections were more likely to receive bailout money from the government—and more of it—in the past year than those with weaker ties, say University of Michigan researchers.

Green firms rewarded by financial markets

May 29, 2008

When a company improves its environmental performance, it is common to think that the accompanying economic improvements are based on the company's more efficient use of resources. However,

Firm location determines equity issuance

Jun 24, 2008

[B]Seasoned equity offerings less common for rural firms[/B] A new study in the journal Financial Management reveals that firms in rural areas are less likely to issue equity than firms in urban areas. In addition, rural firm ...

Recommended for you

Which foods may cost you more due to Calif. drought

Apr 17, 2014

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

User comments : 5

Adjust slider to filter visible comments by rank

Display comments: newest first

El_Nose
not rated yet Mar 29, 2010
Maybe if the prof -- with all due respect -- understood a little more on A) American political structure and B) the TARP - he would understand that while the money was approved by the Congress the distribution of the funds was handled by two different bodies - It was designed with the help of the Federal Reserve, and ovberseen by the department of the Treasury.

It was mandated that all banks at risk receive money. It was recommended that if some banks chose not to accept then they would be seen as stronger and the ones taking it as weaker and the weaker banks would fail .. guilt by association.

While the congress acted as the oversight committee no one allowed them to actually make decisions on this -- we american's are dumb but give us some credit -- the congress let the Fed and treasury handle the business and then scrutinized every decision.

Yeah - it could have been done better -- but when your economy makes up 45% of the world's GPD you make some tough calls.
El_Nose
not rated yet Mar 29, 2010
Th arrogance of suggesting the enitre congress was voting with bank accounts in mind is utterly rediculous...

Could some of the members been this way - sure NO Doubt -- but all -- no we were all told from the US to Germany to France to the UK Japan and even China that a rapid injection of money into the system was the fastest way to cure this crises. We tried taking money out of the system the last time this happened -- in America it was called the Great Depression -- Europe - no offense - was already in a state of depression from WWI at the time and had been there for 10 years already.
Roj
not rated yet Mar 30, 2010
This study is well suited for peer review. Without much interpretation, much less value judgment, the source of public data and statistical method was reported as a correlation of stakeholders favoring TARP by an extra 13%.

The reader is free to decide if this study's reliance on public records adequately accounts for all financial interests legislators had in private corporations receiving TARP bailouts.

And, if an extra 13% correlation is statistically significant, however understated that percetage may be, by relying on public records.

What impressed me, was how a professor from Holland and a grad student from the UK could so easily spot a standard measurement for "conflict of interest" and corporate hegemony, from across the Atlantic ocean.
frajo
not rated yet Mar 30, 2010
Th arrogance of suggesting the enitre congress was voting with bank accounts in mind is utterly rediculous...
I don't find any such suggestion in the article. They are talking of probabilities and correlations only.
Arkaleus
5 / 5 (2) Mar 30, 2010
"Tyranny is not a matter of minor theft and violence, but of wholesale plunder, sacred and profane, private or public. If you are caught committing such crimes in detail you are punished and disgraced; sacrilege, kidnapping, burglary, fraud, theft are the names we give to such petty forms of wrongdoing. But when a man succeeds in robbing the whole body of citizens and reducing them to slavery, they forget these ugly names and call him happy and fortunate, as do all others who hear of his unmitigated wrongdoing."

From Plato's "The Republic"

More news stories

Math modeling handbook now available

Math comes in handy for answering questions about a variety of topics, from calculating the cost-effectiveness of fuel sources and determining the best regions to build high-speed rail to predicting the spread ...

Male-biased tweeting

Today women take an active part in public life. Without a doubt, they also converse with other women. In fact, they even talk to each other about other things besides men. As banal as it sounds, this is far ...

Archaeologists, tribe clash over Native remains

Archaeologists and Native Americans are clashing over Indian remains and artifacts that were excavated during a construction project in the San Francisco Bay Area, but then reburied at an undisclosed location.

Amazon Prime wins streaming deal with HBO

Amazon scored a deal Wednesday to distribute old shows from premium cable TV channel HBO to its monthly Prime subscribers, landing a blow on rival Netflix in the streaming video battle.