Study: Lawmakers More Likely to Support Bills That Boost Their Stock Portfolios

By:
Chris Gaetano
Published Date:
Dec 11, 2020
A recent study by two political scientists quantified how much more likely owning stocks in a company makes a legislator support bills that helps that company, according to the Washington Post.

The researchers, Jordan Carr Peterson and Christian Grose, looked at lawmakers' financial disclosure forms to see what stocks they were invested in, then compared that information to their votes on four major bills over the years: the Financial Services Modernization Act of 1999, the Commodity Futures Modernization Act of 2000, the Emergency Economic Stabilization Act of 2008 (which created the Troubled Asset Relief Program) and the Auto Industry Financing and Restructuring Act of 2008.

The researchers controlled for factors that might affect their vote, such as party, ideology, district wealth, political contributions and total assets (specific controls were particular to each individual bill). Even after controlling for these factors, they found that lawmakers were still more likely to support measures that helped companies in their stock portfolios.

When it came to the Financial Services Modernization Act of 1999, which allowed for the full‐scale integration of commercial banks, investment banks and insurance companies, lawmakers were 1.1 percentage points more likely to support the bill if they had stock in either Citi or Travelers, two companies whose merger hinged on the bill passing, than lawmakers who didn't own stock in either company. The study did not find similar results in support for the Commodity Futures Modernization Act of 2000, but the researchers said that this could be because of its inclusion in an appropriations package, which complicates analyzing lawmaker' preferences and made party affiliation the biggest determinant. (The researchers did note, however, that lawmakers with lots of exposure to equities markets in general were more likely to support the measure.)

When it came to the Emergency Economic Stabilization Act of 2008, having large amounts of financial industry stocks made lawmakers 5 percent more likely to support the measure. Similarly, with regard to Auto Industry Financing and Restructuring Act of 2008, having stocks in the automotive industry was associated with an 8 percent increased chance to vote yes.

"Legislators’ financial self‐interest, and in particular the amount of their personal investments in the industries subject to regulation, oversight, and intervention, play a larger role than district characteristics and play a role that is relatively large even when compared to the impact of legislator party," said the study.

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