Abstract: This paper studies the real effects of campaign finance and judicial selection. Using the Supreme Court's surprise verdict in the Citizens United v. FEC case in 2010, I document that relaxing campaign finance restrictions led to a 61% increase in the average electoral expenditure of judicial candidates. Competition in judicial elections increased along with greater turnover of the judicial bench. Concomitantly, labor productivity increased by 6.6%, but only in states with judicial elections. This increase is driven by industries that are more reliant on the quality of legal institutions. Overall, I provide the first evidence that campaign finance deregulation in judicial elections increases electoral competition and scrutiny and improves factor allocation.
Discussant: Stefan Lewellen, Pennsylvania State University
Johannes Jaspersen, Ludwig-Maximilian University of Munich
Abstract: To avoid endogeneity, financial economists often construct alternate regressors using values from other observations, with lagged and leave-out variables being common examples. We examine a bias in these ``constructed regressors'' that is induced by overlapping fixed effects. We show that inclusion of fixed effects can reintroduce the focal observation's bias through de-meaning. We show generally that the size of the bias is determined by level of overlap and provide an intuitive test for the significance of the bias. We illustrate the bias's magnitude via simulation and with patent examiner data in a Judge FE design. Even when scrambling the patent examiners, thus removing any instrument validity, the bias leads to a first-stage F-statistic over 1,000. We provide general solutions through either adjustment of the fixed effects or construction sets and detail case-specific solutions.
Discussant: Charles Hadlock, University of Pittsburgh
Abstract: We study how firms are affected by the political bargaining power of their home regions. Exploiting shocks to the importance of swing states relative to partisan states stemming from Senate gridlock, we show that corporate valuations and investments increase in response to increases in regional political bargaining power. We further verify the valuation findings using an event study based on the 2021 Georgia runoff election that produced an unexpected balancing of the Senate. Reconciling our positive investment findings with previously documented negative crowding-out effects, we show that tax incentives (rather than demand spillovers) form the driving mechanism behind our findings.
