Active Firms and Active Shareholders: Corporate Political Activity and Shareholder Proposals

Abstract

Corporate political activity has become a top concern of shareholders. We examine whether corporate political activity is associated with one particular type of shareholder activism: shareholder proposal submission. Using data on S&P 500 companies during the period between 2007 through 2013, we find that public pension fund and labor union shareholders are more likely to target firms that donate more to the Republican Party even after controlling for the firms’ financial performance, governance characteristics, and ownership structures. This finding suggests that corporate political activity may intensify tensions between management and some shareholders and, ultimately lead to more activism by these shareholders.