Lobbying expenditures and sin stock market performance

Abstract

We examine the relationship between lobbying expenditures and the market performance for sin stocks. Considering the benefits of lobbying spending (such as receiving bailouts during economic crises, preferential tax rates, government contracts, and tariffs), we conjecture that sin stocks invest more in lobbying than non-sin stocks, and that this strategy leads to higher market performance. Using a sample of US listed sin stocks, we find strong evidence that firms in controversial industries spend more money in lobbying activities. Additionally, our findings suggest that lobbying sin stocks enjoy higher average (annualized) returns than non-lobbying sin stocks. Moreover, we find that these lobbying sin firms enjoy a higher return when compared to a benchmark of non-sin stocks.We also compared our sample of sin stocks to a sample of firms known by their outstanding CSR scores to allow for a sharp contrastf. Interestingly, our findings suggest that, when comparing between CSR and lobbying, lobbying activities seem to (positively) affect the market returns of sin stocks only, while CSR activities (positively) affect the returns of high CSR firms only.