Lobbying, Corporate Performance, and the Moderating Effects of Governance and Industry Concentration

Abstract

Lobbying through political donations is prolific. We show that lobbying increases a firm’s operating performance by 8%, on average. Firms with worse governance (as proxied by antitakeover provisions, a classified board, and CEO-chair duality) are more likely to engage in lobbying, but gain significantly less from lobbying expenditure. Lobbying is less beneficial for firms in concentrated industries, consistent with the idea that industry concentration reduces the external discipline on managers. We take steps to mitigate endogeneity and sample-selection concerns. We use the 2006 reforms to the Lobbying Disclosure Act as a natural experiment to examine the impact of restrictions in lobbying through more stringent disclosure requirements and find no association between lobbying and performance following the 2006 reforms.