Do Pivotal Politicians Benefit Constituent Companies?

We study how elected politicians who hold strong bargaining power due to their pivotal position in the legislative process use their leverage to benefit home district firms. U.S. senators from politically-centrist states possess greater political leverage than senators from politically-partisan states during congressional sessions with narrow Senate majorities relative to sessions with wide majorities. We exploit this increase in relative bargaining power to identify the causal economic effects of political leverage on firm outcomes. We find that centrist states receive greater shares of federal spending when the Senate is relatively balanced, and that this leads co-located firms to increase investment, experience higher market valuations, and raise more equity. We further find evidence that pivotal centrist senators influence tax policy and trade policy to benefit their home state firms. Lastly, we conduct an event study around the 2021 Georgia Senate runoff elections to identify the effect of political leverage on firm value. We find that, following the elections that resulted in an unexpected 50-50 even split of the Senate, centrist-state firms experienced higher stock returns relative to partisan-state firms