The Firm-Level Effects of Access to the EU Commission

• In Event: Buying Influence: Political Economy of Lobbying and Campaign Contributions

Abstract

The number of lobbyists in Brussels – the European Union’s de facto political center – is only surpassed by Washington, DC. The European Union (EU) and its institutions have gained more competencies and importance as EU integration has been progressing. Over the past decades, the EU’s portfolio has expanded from agricultural and trade policy to areas such as financial and environmental regulation. Naturally, these developments were paralleled by companies and trade associations gradually shifting their political activities to the EU stage. It stands to reason that these firm-level political activities may have considerable economic effects; resources may be directly – through grants or subsidies – or indirectly – by the design of specific regulations – be misallocated to relatively unproductive companies, which may entail significant efficiency costs.
However, despite these developments and their potentially significant implications, our understanding of firm-level political activities in the EU is limited. My paper aims to fill that gap by examining the determinants and effects of access to the EU Commission. The latter is arguably the most powerful EU institution as it sets the legislative agenda and implements EU policies as the EU’s executive branch. Access is operationalized by meetings with EU Commission officials. While this variable does not capture the full breadth of companies’ political activities, I argue that access to decisionmakers in the EU Commission should be a critical prerequisite for companies’ lobbying success on the EU level. To measure the effects of firm-level lobbying, I study EU Commission grants awarded to companies; additionally, I employ an event study around meeting dates to gauge how stock markets value companies’ meetings with EU Commission officials.
For the empirical part of the paper, I utilize meeting data of individual companies with EU Commission officials from 2014 to 2019; the data were kindly provided by Transparency International. These data are combined with EU Commission grants, prices, and procurement awards data, as well as firm-level covariates. I show that companies’ meetings with an EU Commissioner in year t is strongly correlated with the award of EU Commission grants in year t+1 by a department overseen by that very Commissioner. Exploiting Commissioners’ countries (and regions) of origin, I instrument for meetings with company-Commissioner co-nationality, thus establishing a causal effect of firm-level access to the EU Commission and the award of EU Commission money to the firm.
I complement this approach by conducting an event study around companies’ meeting dates with EU Commission officials. Using this methodology, I show that stock markets value such meetings, which implies that firm-level meetings are expected to confer benefits to the company. I moreover explore heterogenous effects by Commissioner portfolio and company characteristics. Lastly, I show that companies with access to the EU Commission (i.e. companies that had meetings with EU Commission officials in the previous year) were more affected by the Brexit shock following the 2016 referendum that led to the UK leaving the European Union. Interpreting Brexit as an event that made access to the EU Commission relatively less valuable, this finding is consistent with my previous results.

This paper – to my knowledge – is the first that studies firm-level political activities in the European Union at this level of granularity. I provide two measures of benefits that companies with access to the EU Commission receive – EU Commission grants and stock market returns - , and discuss efficiency implications against the backdrop of the resource misallocation literature. Lastly, the paper utilizes novel or scarcely used data sources by analyzing companies’ meeting data and EU Commission grants, prices, and procurement data.

Author

• Johannes Wiedemann, Yale University