RSFAS Seminar Series – Associate Professor Z. Jay Wang

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Speaker: Associate Professor Z. Jay Wang

Institution: University of Oregon

Date/Time: 10:00-11:00, Friday 22 October 2021

Title: Pay Now, Play Later: Political Contributions and Underwriting Relationships in the Muni Market

Abstract: We investigate political contributions made by municipal underwriters under the regulation of Rule G-37, which requires detailed disclosure and prohibits contributing underwriters from engaging in business with local issuers for two years if the contribution exceeds $250.  We find that underwriters can circumvent the rule by making multi-small donations (multiple contributions under the de minimis limit of $250) and such strategy leads to a significant increase in their negotiated market shares.  Large donations (contributions above the de minimis limit of $250) are also associated with a significant increase in donating underwriters future  market  shares,  but  with  a  two-year  delay.   Further  analyses  show  that  these  effects  are  primarily driven  by  contributions  to  elected  officials.   We  find  that  regional  underwriters  are  more  likely  to  make multi-small donations and national underwriters lean toward large donations in states with high growth in negotiated issues. We also provide evidence that underwriters make substantial donations to political parties in states where they already have strong underwriting relations.  Our findings suggest that underwriters adopt different strategies to build connections with municipal issuers and political connections still play an influential role in the municipal market even after the implementation of Rule G-37.

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