Bipartisan Campaign Reform Act Research Articles

Political Ties across Country Borders

This paper investigates the value to foreign firms of contributing to US political campaigns. Using a comprehensive database of US campaign contributions by employees of US subsidiaries of foreign firms, we find that foreign firms contributing to US political campaigns have higher profits than a country-industry-size matched sample of foreign firms that do not contribute. In particular, foreign firms facing greater information asymmetry have greater benefits from contributions. Exploiting the Bipartisan Campaign Reform Act (BCRA) as an exogenous shock to campaign contributions, we find that foreign contributing firms not only receive more government contracts than non-contributing foreign and domestic firms, but also benefit disproportionately more than domestic contributing firms. Our results highlight the limited effectiveness of campaign contribution laws and the cost to US firms of foreign political contributions.

Political Contributions and the Price of Credit Risk: Evidence from Credit Default Swaps

Firm political contributions are associated with lower credit default swap spreads for contributing firms. To address endogeneity, we employ novel instruments and use a set of exogenous events on campaign contribution restrictions: (a) the passage of the Bipartisan Campaign Reform Act (BCRA) that banned soft money contributions, (b) the Federal Election Commission decision to interpret the BCRA less strictly, (c) the partial reversal of the BCRA and, (d) the McConnell v. FEC Supreme Court decision, which upheld the BCRA. Overall, the evidence suggests that political contributions are valued by credit market participants.

Analyzing Campaign Contributions in Context

Political campaign contributions are not made in a vacuum. Rather, contributions from individuals are affected by the political and legal environment experienced by potential donors. I study itemized contributions to candidates, parties, and political action committees (PACs) aggregated by congressional district for 1994-2006. The timing and competitiveness of presidential, congressional, and even state elections affect the expected benefits and opportunity costs of contributing to all types of committees, and this is reflected in the amounts contributed through different channels. Political party committees raising hard money contributions relied more on districts with high per capita income, education attainment, and urbanization after the Bipartisan Campaign Reform Act (BCRA) than before, but were still less dependent on these districts than soft money committees before the BCRA. Overall, the BCRA led to less reliance on districts with high socioeconomic status as sources of itemized contributions to committees regulated by the Federal Election Commission.

Do Corporate Political Contributions Enhance Shareholder Value?

Although various papers have examined the relation between political contributions and equity value, there is no consensus on whether the contributions increase equity value of the contributing firms. We provide causal evidence by examining announcement returns to the McConnell v. FEC Supreme Court decision of 2003 and amendments to the Bipartisan Campaign Reform Act (BCRA) of 2002, which eventually led to the ban on “soft money” contributions. We find that the decision decreases equity value by 0.26% to 1.06% in a day for firms that were contributing soft money prior to the ban. Daily and intraday return analyses of the events suggest that the market expects every dollar of soft money contributions to generate about $40 to $50 in return for the contributing firms.

The Supreme Court Perspective of Media Effects as Expressed in Campaign Finance Reform

The Bipartisan Campaign Reform Act (BCRA) of 2002 amended campaign finance law by banning unlimited soft money contributions to political parties and reforming the financing of advertising close to an election. In this ruling the Court is clearly concerned with the amount of money being donated to political candidates, which leads to the appearance of impropriety in gaining access to elected officials that in turn may influence legislation. In ruling on the constitutionality of this legislation, the Supreme Court also provided insight into its view of mass media effects. In applying the principles of cultivation theory and the media framing paradigm, the groups that can fund more commercials have an advantage with voters who may believe these repeated advertisements and vote for that particular candidate. This Article posits what might be the Supreme Court's view of the media effects debate by examining its ruling in McConnell v. FEC.

From Bad to Worse: The Unraveling of the Campaign Finance System

This article argues that the campaign finance system has deteriorated under the Bipartisan Campaign Reform Act (BCRA). The system retains the vices of the former regime while jettisoning its virtues. Although successful at banning national party soft money, achieving this narrow goal has come at high cost. Significant problems remain or worsen including the time politicians spend fundraising, the unfair distribution of campaign money, and arrangements that weaken political parties and empower interest groups. Critically, public trust in the system has not changed at all since passage of BCRA. The essay closes by offering modest suggestions to improve the state of affairs.

Rolling in the Dough: The Continued Surge in Individual Contributions to Presidential Candidates and Party Committees

The dramatic growth in the numbers of individuals contributing to presidential candidates and the surge in total amounts being contributed has generated substantial media attention in the 2008 presidential election. Individuals are giving more, in part, because the 2002 Bipartisan Campaign Reform Act (BCRA) raised contribution limits and encouraged "max-out" donors to contribute to party committees as well. This study compares individual contributions to presidential candidates and party committees in 1999, the year prior to the last pre-BCRA presidential election, and in the years prior to post-BCRA presidential elections.

Campaign Finance Reform as Institutional Choice

If the Bipartisan Campaign Reform Act (BCRA) of 2002 banned the use of soft money—the only source of funds in which Democrats approached parity with Republicans—why did the Republican congressional leadership revile the bill and the Democratic congressional leadership embrace it? We address this puzzle by modeling competing electoral, partisan, and policy motives that guided members’ decision making on the vote for final passage of this bill. Our solution lies in the fact that members believed that BCRA would reduce the role of the national parties in congressional elections. Although the parties may behave similarly under a fixed electoral regime, we find that the BCRA vote is consistent with two parties that prefer different sets of electoral rules. Specifically, Democrats appear more sympathetic to changes that enhance the role of candidates and outside groups, whereas Republicans appear to prefer stronger national parties.

The Economics of Bipartisan Campaign Reform

This essay evaluates two provisions in the Bipartisan Campaign Reform Act (BCRA): raising contribution limits and banning soft money. The model highlights the importance of marginal cost ratios for candidates and their parties. The results suggest that raising contribution limits protects incumbents. Importantly, this generates efficiency gains that come at the expense of electoral competitiveness. When a party has an advantage in a large number of districts, the soft money ban may also reduce rent-seeking effort while exacerbating existing advantages. Ultimately, the two provisions underscore an “equity-efficiency” trade-off. While restricting rent-seeking effort, they probably lead to less competitive elections.

Veiled Political Actors and Campaign Disclosure Laws in Direct Democracy

295 DISCLOSURE STATUTES are ubiquitous in the regulatory landscape of political campaigns. Disclosure is the primary kind of campaign finance regulation affecting initiative and referendum elections, and it may be the only regulation that is constitutionally permissible in this context. Disclosure elicits fairly widespread support; those who oppose contribution or expenditure limits are often willing to support disclosure statutes.1 Those who support more extensive campaign finance regulation usually favor disclosure as a necessary component that serves the traditional objective in candidate elections of combating corruption and also provides necessary information to voters in both candidate and issue elections. The willingness of the majority and most dissenting justices to uphold the disclosure provisions in the Bipartisan Campaign Reform Act (BCRA) suggests that disclosure statutes are likely to continue to withstand constitutional scrutiny in the wake of McConnell v. Federal Election Commission.2 Notwithstanding this broad support, disclosure statutes have not received much scholarly attention, particularly in the legal academy. This lack of attention is unfortunate because the design of disclosure laws is crucial in several ways. First, the constitutional test applied to campaign finance laws, including disclosure, requires that statutes be substantially related to important state interests. Thus, if disclosure is justified because it provides useful information to citizens, the information elicited should be the most helpful to voters. In addition, targeting is important for the effectiveness of disclosure laws. Voters have limited time and attention, so they should be provided the information most crucial to improving their ability to vote consistently with their preferences. Finally, entities adopt strategies to circumvent campaign finance restrictions, so statutes must be drafted to reduce opportunities for evasion. Although subterfuge may be even more common when the law also imposes limitations on contributions and expenditures, experience on the state level in issue campaigns, where regulation is almost entirely through disclosure, sug-

Reform in a Cold Climate: Change in US Campaign Finance Law

AbstractThe Bipartisan Campaign Reform Act (BCRA) of 2002 was the first major change in US federal campaign finance law in a quarter of a century. Many attempts at reform had failed in that period. Few members of Congress were enthusiasts for reform, the two parties and two chambers had conflicting interests to protect, successive presidents did not promote the issue and public pressure for reform was weak. When reform was achieved in 2002, many of these formidable obstacles remained in place. This paper draws on the literature of public interest reform and policy innovation to attribute the change to a policy entrepreneur whose resources had undergone a sharp increase, the neutralization of opposition, the impact of an event (the bankruptcy of the Enron Corporation) and membership turnover in Congress. The substantial support for the bill in Congress from Democrats, the party with most to lose from reform, is attributed to the inescapability of past commitments.

Inside the campaign finance battle: court testimony on the new reforms

In 2002 Congress enacted the Bipartisan Campaign Reform Act (BCRA), the first major revision of federal campaign finance law in a generation. In March 2001, after a fiercely contested and highly divisive seven-year partisan legislative battle, the Senate passed S. 27, known as the McCain-Feingold legislation. The House responded by passing H.R. 2356, companion legislation known as Shays-Meehan, in February 2002. The Senate then approved the House-passed version, and President George W. Bush signed BCRA into law on March 27, 2002, stating that the bill had flaws but overall improves the current system of financing for federal campaigns. The Reform Act was taken to court within hours of the President's signature. Dozens of interest groups and lawmakers who had opposed passage of the Act in Congress lodged complaints that challenged the constitutionality of virtually every aspect of the new law. Following review by a special three-judge panel, the case is expected to reach the U.S. Supreme Court in 2003. This litigation constitutes the most important campaign finance case since the Supreme Court issued its decision in Buckley v. Valeo more than twenty-five years ago. The testimony, submitted by some of the country's most knowledgeable political scientists and most experienced politicians, constitutes an invaluable body of knowledge about the complexities of campaign finance and the role of money in our political system. Unfortunately, only the lawyers, political scientists, and practitioners actually involved in the litigation have seen most of this writing --until now. Inside the Campaign Finance Battle makes key testimony in this historic case available to a general readership, in the process shedding new light on campaign finance practices central to the congressional debate on the reform act and to the landmark litigation challenging its constitutionality.

Act I: BCRA Wins in Congress. Act II: BCRA Wins Big at the Court. Act III: BCRA Loses to Reality

335 THE CAMPAIGN FINANCE reformers’ triumph is explained best in words attributed to Thomas Carlyle: “Permanence, perseverance and persistence in spite of all obstacles, discouragements, and impossibilities. . . .” The triumph is threefold: First, winning enactment of the Bipartisan Campaign Reform Act (BCRA). Second, winning a “surprising[ly] . . . unequivocal victory” at the Court.1 Third, winning both the public and the Court through effective advocacy. The victories in Congress and Court were the well-deserved fruit of the reformers’ having won a years-long public dialogue with a constant, clear portrayal of money in politics as evil—an evil that, they persuasively claimed, could be reduced by steps they proposed. Justice O’Connor captured the matter so well in her 2003 book: “[R]are indeed is the legal victory—in court or legislature—that is not a careful byproduct of an emerging social consensus.”2 The reformers’ diagnosis of the problems— a “dark view of politics”—is never hard to sell.3 And perhaps it was easy to persuade editorial boards and activists that the reformers’ prescription—trying to “dam” or “bottle up” the flows of campaign funds—would be effective. But experience has shown that “bottling up” doesn’t work.4 True, in 1976 the newness of 1974’s major amendments to FECA, combined

Political Parties Under the Post-McConnell Bipartisan Campaign Reform Act

177 THIS ARTICLE considers some implications for the political system of the federal soft money ban passed by Congress and interpreted by the Supreme Court in McConnell v. FEC (124 S. Ct. 619 [2003]). Political scientists for several years have been debating whether and how a ban on soft money might hurt the political parties. These debates were reflected on the floor of Congress and in briefs filed with the courts in McConnell v. FEC. By upholding most of the Bipartisan Campaign Reform Act (BCRA) the Supreme Court assured the debate would continue. But by overturning the law’s attempt to force parties to choose between independent and coordinated spending, and by suggesting that the legal path might not be completely clear for non-party political committees to accept soft money, the Court gave party optimists even more reason to be hopeful. This article argues that parties may well be able to raise and spend enough hard money to make up for the loss of soft money, and non-party groups may face significant obstacles to becoming major funding rivals to the parties. The analysis concludes with implications of the Court’s decision for presidential public funding and spending limits. To clear away some easy debater’s points, let us begin by acknowledging the obvious. The six major party national committees raised almost $500 million in soft money in 2001–2002. This was more than 40% of their total receipts. If they cannot replace what they lose, having less money is bound to hurt. With that out of the way we can get to more interesting questions:

Compelling Interests and How Best to Achieve Them: A Response to Mr. Bauer's Reply

13 AN AUTHOR IS OBVIOUSLY PLEASED whenever his work receives sustained and thoughtful analysis, especially when that analysis calls the author’s work “interesting,” “imaginative,” and “important.”1 Accordingly, I am grateful that Robert Bauer has taken considerable time and effort to analyze and evaluate my piece on the “electioneering communications” definition in the Bipartisan Campaign Reform Act (BCRA).2 But, although he deems the piece worthy of “close attention,” Bauer finds its reasoning flawed. I offer this response because I believe his criticism is premised on a misunderstanding of my main contention.

Enron, a Perceived Crisis in Public Confidence, and the Bipartisan Campaign Reform Act of 2002

AbstractIn the spring of 2002 Congress passed and President Bush signed the Bipartisan Campaign Reform Act (BCRA), the first major piece of campaign reform legislation since the early 1970s. While momentum for reform had been growing since the mid‐1990s, without the Enron scandal and its potential threat to public officials, additional support to overcome the procedural barriers and opposition from the Republican leadership in both the House and Senate would have been difficult to overcome. In addition, Bush Administration ties to Enron had the effect of demobilizing the president on the issue, making it virtually impossible for him to veto a bill he fundamentally opposed. The Enron scandal provided the “window of opportunity” needed by reform‐oriented elites to pass a controversial and far‐ranging law that was not a high priority on the public's agenda. The end result is a law, pending a Supreme Court ruling on its constitutionality, that has the potential to alter fundamentally how electoral campaigns are funded and conducted.