The Department of Government
The Department of Government

American Politics Workshop- Brian Richter

"The Value of Political Geography"

Wed, November 29, 2017 | BAT 5.108

12:00 PM - 1:30 PM

Abstract: We establish that political geography fundamental to voter representation has value to firms. 

We do so by exploiting shocks to political maps that occur around mandated reapportionment cycles in the United States and geo-coded locations of firms’ headquarters.  Redistricting keeps some firms in Congressional districts that are largely unchanged at one extreme and moves firms to entirely new districts with a different set of constituents at the other extreme. 

We first show that the stability of political districts matters to firms as bigger changes in the proportion of geographic overlap between a prior and new Congressional district in which a firm resides has a larger negative effect on firms’ market valuations.  We then explore why.  We show that the key district attribute for firms appears to be how safe or competitive the district is for partisan politicians:  firms benefit when the Congressional district in which they reside have constituents that align solidly with one party and suffer when constituents span both major parties more equally.  These findings hold irrespective of whether or not the Districts in which firms are embedded keep the same House Representative or even one from the same party.  Moreover, the results are robust to monetary relationships between firms and specific politicians.    

We conclude by discussing, and providing preliminary evidence on, several potential reasons why firms appear to benefit from more partisan districts, including how such districts may (i) alter the relational contract between firms and politicians, (ii) provide greater room for agency slack between politicians and voters, and (iii) reduce uncertainty over politicians’ ideological preferences for certain policies.    

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