Political connections of the boards of directors and department of defense contractorsʼ excessive profits

Abstract

Despite fast-growing interest in research on political connections, most papers on this topic belong to the economics or public administration fields. Few studies, if any, look into the role of firmsʼ political connections in the Department of Defense (DoD) acquisition area. This paper attempts to bridge this gap by investigating the impact of political connections on the excessive profitability of DoD contractors. We find that, in contrast to what the “corruption hypothesis” predicts, the excessive profits are less (more) pronounced for those contractors with politically connected (non-connected) boards. Our findings suggest that those politically connected board directors may use their experience to serve a benevolent role to the public in keeping DoD contractors from opportunistic profitseeking behaviors that could reach or even cross the federal governmentʼs regulatory redline.