Furtive Political Contributions: An Analysis of Private Equity and Employment

Abstract

An increasingly polarized atmosphere in American politics has correlated with huge growth in money pouring into campaigns and the lobbying industry. Both academics and politicians have warned the public of wealthy Americans buying influence in government without public disclosure. This study investigates one potential channel to buy political influence without public scrutiny. In particular, this paper considers whether the employment levels at companies targeted by private equity buyouts are different when a private equity firm has political connections. After investigating private equity buyouts between 1990 and 2015, this study concludes that the political connections of a private equity firm have no effect on the employment level of the firm’s portfolio companies. This paper posits the investment strategy of a private equity firm is a better predictor for employment levels at portfolio companies. Specifically, a distressed investing strategy indicator proved to be a significant factor in predicting portfolio company employment levels. This paper is important as it refutes one potential pathway to buy political influence and encourages future research into other alternative channels to political influence.