Do Corporate Political Contributions Enhance Shareholder Value?

Abstract

Although various papers have examined the relation between political contributions and equity value, there is no consensus on whether the contributions increase equity value of the contributing firms. We provide causal evidence by examining announcement returns to the McConnell v. FEC Supreme Court decision of 2003 and amendments to the Bipartisan Campaign Reform Act (BCRA) of 2002, which eventually led to the ban on “soft money” contributions. We find that the decision decreases equity value by 0.26% to 1.06% in a day for firms that were contributing soft money prior to the ban. Daily and intraday return analyses of the events suggest that the market expects every dollar of soft money contributions to generate about $40 to $50 in return for the contributing firms.