Title

Agency Theory and The House Bank Affair

Publication Title

Review of Financial Economics

Publication Date

2004

Document Type

Article

DOI

10.1016/j.rfe.2003.09.008

Keywords

agency, politics, entrenchment, house bank

Disciplines

Finance and Financial Management

Abstract

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.


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