Corruption, Political Connections, and Municipal Finance

Thanks for visiting.  My name is Alex Butler and I am a professor of finance at the Jones Graduate School of Business at Rice University. My research interests include the external financing decision of firms, consumers, and governments. Recently, Larry Fauver, Sandra Mortal, and I wrote a paper about how political corruption can impact municipal financing activities: 

Alexander W. Butler, Larry Fauver, and Sandra Mortal, 2009, "Corruption, Political Connections, and Municipal Finance," Review of Financial Studies, Vol. 22, No. 7, 2673-2705.


We show that state corruption and political connections have strong effects on municipal
bond sales and underwriting. Higher state corruption is associated with greater credit
risk and higher bond yields. Corrupt states can eliminate the corruption yield penalty by
purchasing credit enhancements. Underwriting fees were significantly higher during an era
when underwriters made political contributions to win underwriting business. This pay-to-
play underwriting fee premium exists only for negotiated bid bonds where underwriting
business can be allocated on the basis of political favoritism. Overall, our results show
a strong impact of corruption and political connections on financial market outcomes.


We have organized and made available here the data for state-year corruption convictions in the US, 1976-2013, as used in the paper.  If you make use of the data, please take a look at the "readme" file below.