Government Contract Transparency and Payoffs from Political Connections

Abstract

I examine how the disclosure of government contract information required by the Federal Funding Accountability and Transparency Act (FFATA) since 2007 affects firm political campaign contributions. The public disclosure of details of government contracts after FFATA can be used by firms to identify politicians who can influence government contract allocations in favor of their campaign donors. Consistent with this expectation, I find that, in the post-FFATA period, firms significantly increase contributions to politicians who are more influential in government contract allocations. Correspondingly, I find that politicians engage in increased contract allocations in favor of campaign donors after FFATA. These results are more pronounced for politicians in competitive races, for non-competitive government contracts, and for firms that were less strategic campaign donors before FFATA. Overall, the results highlight an unintended consequence of government contract disclosures – that government contract transparency helps firms build more effective political connections and increases rewards for their political contributions.