Changes in Firms’ Political Investment Opportunities, Managerial Accountability, and Reputational Risk (original) (raw)
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The Governance Challenges of Corporate Political Activity
Business & Society, 2013
This article explains the rationale for study of the governance challenges of corporate political activity. The topic is important, especially in light of the U.S. Supreme Court's 2010 Citizens United decision, but understudied to date. The authors review the literature bearing on this topic. The authors separate consideration of the topic into macro-level and micro-level issues. The macro level concerns the societal perspective. At this level, key research questions concern whether corporate political activity be allowed, and how it should be regulated. The micro level covers managerial and shareholder control over corporate political activity. At this level, key research questions include concern whether the firm should practice political activity and how to regulate practice through professional self-regulation, ethical guidelines, and corporate governance systems control. The remainder of this article contains focused summaries of the articles selected for this Special Issue. Each article is introduced and evaluated against the key research questions at the macro or micro levels of analysis.
Corporate Political Activity: An Integrated Model
Asian Social Science, 2015
This paper reviews the current state of research in the area of corporate political activity to build an integrated model. This model segregates the related but scattered corporate political activity constructs in literature into enablers, motivators, moderators, choices, and outcomes of corporate political activity. This model can be help in reconciling contradictory results in literature. For instance, several studies have found evidence positive, neutral, and negative effect of CPA on performance. This model suggests that CPA-performance relationship is enabled and moderated by several factors, and controlling them may yield a better picture of CPA effect on performance. We further suggest gaps in current literature and give suggestions for future research in this area.
SSRN Electronic Journal, 2020
Purpose-The study investigates the effect of political risk on shareholder value, using an event study and a novel measure of firm-level political risk recently developed by Hassan et al. (2017). In addition, the authors explore how corporate social responsibility (CSR) influences the effect of political risk on shareholder wealth. Design/methodology/approach-The authors exploit the guilty plea of Jack Abramoff, a well-known lobbyist, on January 3, 2006, as an exogenous shock that made lobbying less effective and less useful in the future, depriving firms of an important tool to reduce political exposure. Findings-The results show that the market reactions are significantly more negative for firms with more political exposure. Additional analysis corroborates the results, including propensity score matching, instrumental-variable analysis and Oster's (2019) method for testing coefficient stability. Finally, the authors note that the adverse effect of political risk on shareholder value is substantially mitigated for firms with strong social responsibility, consistent with the risk mitigation hypothesis.
CEO characteristics, firm performance, and corporate political contributions
Review of Financial Economics, 2019
We investigate if CEO characteristics determine the choice of Political Action Committee (PAC) contributions by firms and if such participation leads to better firm performance. Using a unique, hand‐collected database, we also focus on the identity of the politicians receiving PAC contributions to examine the impact of the value‐relevance of such contributions. Examining data on corporate contributions made to candidates seeking federal office during the 2002, 2004, and 2006 election cycles, we find that CEO dominance and interest alignment influence strategic choices of firms with regards to establishing PACs. Our analysis of value‐relevant contributions shows that firms prefer to donate to politicians representing the state of a firm's headquarters, validating the truth to the adage that all politics is local. However, these targeted political contributions do not have a discernible impact on firm performance.
Corporate Campaign Spending: giving ShareholderS a voiCe
Available at SSRN 1550990, 2010
The Brennan Center for Justice at NYU School of Law is a non-partisan public policy and law institute that focuses on fundamental issues of democracy and justice. Our work ranges from voting rights to redistricting reform, from access to the courts to presidential power in the fight against terrorism. A singular institution -part think tank, part public interest law firm, part advocacy group -the Brennan Center combines scholarship, legislative and legal advocacy, and communications to win meaningful, measureable change in the public sector.
Academy of Management Review, 2023
Law-abiding firms often attempt to conceal their corporate political activity (CPA), yet the concealment of CPA has not been matched by our understanding of the phenomenon. We develop a theoretical framework consisting of three components to analyze firms’ CPA concealment strategies. First, we provide a detailed conceptual background on CPA concealment, including what CPA concealment is and how it can occur. Second, we develop an in-depth analysis of the key benefits and costs of concealing CPA for firms. Finally, we integrate this analysis with positive political theory to place our firm-level calculus in the context of policymaking by identifying the public policymakers whom firms are most likely to influence via CPA concealment. Based on this framework, we generate additional empirically testable propositions on how CPA concealment changes with factors at the country, institution, issue, and firm levels. This study is the first to gen- erate systematic theory on firms’ CPA concealment strategies. Moreover, this research context highlights the particular importance of theory for investigating consequential phenomena that yield scarce data; it is theory which guides data discovery ex ante, helps assess bias ex post, and uncovers key insights that empirical analysis alone cannot generate.
Corporate strategy, political contributions and corporate risk-taking
Corporate Governance: The International Journal of Business in Society
Purpose Despite the importance and prevalence of corporate political activities in modern organizations, there remains limited insight on the potential relationship between political contributions and companies’ risk-taking activities. This study aims to examine the relationship between monetary political contributions of firms and corporate risk-taking activities in the context of unstable political and economic environments. Design/methodology/approach The authors use a two-step system GMM estimation to investigate the subject using a cross-country sample of 307 firms from 22 countries covered over 2002–2017. In line with previous studies, the authors control for various corporate governance mechanisms, firm-level factors and country-level characteristics. Findings The findings demonstrate that firms that make monetary political contributions exhibit lower levels of risk as measured by different proxies for risks, namely, systematic, idiosyncratic and total risk. Practical implica...
The CEO as chief political officer: Managerial discretion and corporate political activity
Journal of Business Research, 2015
Corporate political activity (CPA) is an important nonmarket strategy aimed at advancing a firm's interests by influencing public policy. Yet studies report mixed results as to the impact of CPA on firm outcomes. Building on recent extant research we suggest that one reason for the ambivalent evidence regarding the impact of CPA on firm performance is the moderating role of CEO discretion on the CPA-firm performance relationship. In a longitudinal study of S&P 1000 firms over 10 years, we test competing perspectives regarding the moderating impact of CEO discretion on the CPA-corporate performance relationship. We find that some aspects of CEO discretion, in particular CEO duality, moderate the relationship between CPA and performance. The findings provide some support for an agency view of the impact of CEO discretion the CPA-performance relationships, which carry implications for both scholarship and regulation in the areas of CPA and corporate governance.
Corporate Political Contributions and Stock Returns
The Journal of Finance, 2010
Corporate Political Contributions and Stock Returns We develop a new and comprehensive database of firm-level contributions to U.S. political campaigns from 1979 to 2004. We construct variables that measure the extent of firm support for candidates. We find that these measures are positively and significantly correlated with the crosssection of future returns. The effect is strongest for firms that support a greater number of candidates which hold office in the same state that the firm is based. In addition, there are stronger effects for firms whose contributions are slanted toward House candidates and Democrats.
Is Corporate Political Activity an Investment or Agency? An Application of System GMM Approach
Corporate political activity (CPA) has been recognized as bearing a significant impact on financial performance (FP). Nevertheless, there has been a lack of considerable research to date. The results of the research regarding the relationship between CPA and FP have been contradictory and this has necessitated further investigation of this relationship. Nonetheless, rather than examining the relationship between CPA and FP, research scholars have revealed that a contingency perspective must be employed for revealing the conditions and the context which enhance the relationship between these two constructs. This study offers a quite distinctive viewpoint with respect to the link between CPA and FP as regards the corporate reputation perspective. For this reason, the study obtained data from the Fortune list of top 100 World Most Admired Companies (WMAC) for the period of 2007 and 2016. This data was utilized to examine the relationship between CPA and FP using the dynamic panel data system GMM (Generalized Method of Moments) estimator. This study finds virtually no support for the hypothesis that lobbying and PACs (political action committees) represent an investment in political capital. Instead, CPA is symptomatic of agency problems within firms. This study also argues that corporate reputation moderates the effect of CPA on the FP and the analysis supports the argument. Our results are particularly useful in light of the reputable corporation, which is greatly to likely increase the use of corporate funds for political contributions.