Agency Theory and The House Bank Affair
Review of Financial Economics
agency, politics, entrenchment, house bank
Finance and Financial Management
In one of the worst political scandals of the 1990s, a large number of members of the U.S. House of Representatives wrote checks on nonexistent balances in what has become known as the House bank scandal. Agency theory tells us that the most entrenched members of the House should be more likely to consume excessive perquisites in the form of writing more bad checks. In this paper, we employ a Tobit model to test whether more entrenched members of the House engaged in excessive writing of bad checks. Our results support the agency-theoretic interpretation and confirm that entrenched members were more likely to write a greater number of bad checks.
Preece, Dianna C.; Mullineaux, Donald J.; Filbeck, Greg; and Dennis, Steven A. (2004). Agency Theory and The House Bank Affair. Review of Financial Economics 13(3), 259-267. doi: 10.1016/j.rfe.2003.09.008 Retrieved from http://digitalcommons.kent.edu/finpubs/9