Topics: Miller College of Business, Research

January 5, 2022

miller college of business building

A recently published research paper, co-authored by two Ball State University faculty members, explores how some firms that default on federal contracts try to mitigate their reputation by boosting their financial political contributions and increasing their spending on lobbying.

The researchers concluded these firms in question “primarily target Congressional elections and increase their expenditures on lobbying,” which “has a positive effect on the ability of the defaulting firm to attract more contracts in the following year.”

The paper, “Contractor Default: Predictions, Politics, and Penalties in the Procurement Process,” is co-authored by Dr. Reza Houston, assistant professor of Finance at Ball State; Dr. Stephen Ferris, Bryan Dean of the Miller College of Business; and Dr. Jan Hanousek, a professor at Charles University in Prague and senior researcher at the Economics Institute of the Czech Academy of Sciences. It was recently published in the Annals of Public and Cooperative Economics.

The research paper also features a thorough examination and analysis of the factors that predict whether a federal government contractor will default on its obligations to the government.

“Our results regarding the determinants of default and the punishment of defaulting firms are highly relevant for redesigning public policy and regulation,” Dr. Houston said. “These results suggest pathways for changes in the regulatory oversight of the federal procurement process. Also, these results are of interest to political economy, which focuses on how political power is merged with corporate resources to create specific policy outcomes.”

Among the other key findings in this research paper regarding defaulting federal contractors and their political contributions:

  • Total PAC contributions positively affect a firm’s contract awards, as do Congressional contributions.
  • Senatorial contributions also have a positive effect and are borderline significant.
  • Presidential contributions, however, are insignificant.