Lobbying, Operating Performance, and Corporate Governance

Abstract

I show that lobbying improves operating performance but that poor corporate governance reduces any improvement. Lobbying is prolific. However, it is unclear if lobbying actually influences legislative behavior and benefits lobbiers or if it is dead money. I show that lobbying increases a firm’s accounting performance by 5.2%, on average, after controlling for other relevant variables. However, any performance improvement decreases with poor governance: a 1 point increase in the Bebchuk et al (2009) entrenchment index reduces the gains from lobbying by 3.9%. The results are robust to endogeneity concerns and modeling technique. This suggests that: (1) Lobbying expenditure is value-creating, on average, but can be another avenue for entrenched managers to pursue self-interested goals; and (2) because lobbying improves performance, there is some indirect evidence that influences legislative behavior.