Unlock the Black Box of Corporate Political Strategies: Congressional Contribution and Lobbying for US Firms

Abstract

Firms engage in two kinds of political strategies to influence legislative decision: campaign contribution and lobbying. In this paper, I set up a simple framework treating contribution and subsequent lobbying as a two stage game, and empirically investigate the connection between the two. I use random outcomes in close congressional elections as the identifying variation, and measure policy outcome of lobbying by looking at firms’ stock market reactions when their lobbied bills were voted in congress. Results show a complementary relationship between contribution and lobbying. A firm is more likely to lobby as well as spend more money in annual totals when it gets more connected via contribution. Connected firms also get more favorable policies. Having contributed to one more congressman in the preceding election cycle on average increases a firm’s market capitalization by $84,833 in 30 days following a legislative voting on its lobbied bill.