Beyond the revolving door: Advocacy behavior and social distance to financial regulators

Abstract

AbstractThe financial system is governed not just by formal rules but also by social relationships that pervade the elite strata of society. Understanding such dynamics entails understanding complex relational ties between actors, a task that can be facilitated through the use of network analysis. We argue that a latent feature of interest to scholars of the political economy of finance is one of social distance, which is a measurable concept. Using new data from the financial sector, we measure the social distance between a range of financial firms and one key regulator, the U.S. Securities and Exchange Commission (SEC), over time to assess whether or not social distance is related to organizations’ advocacy behavior. We find a positive relationship between how close a given organization is to the SEC and how often it engages in advocacy. The result persists when we control for numerous factors related to organizational characteristics, firm size, and when we measure advocacy frequency in different ways.