Corporate Campaign Contributions Research Articles

The political behavior of family firms: Evidence from Brazil

• We propose a theory of the political behavior of family firms based on their increased capacity to build relationships with political actors. • We employ data on family ties in Brazilian listed companies and data on campaign contributions to study the political behavior of family firms. • Family firms as well as members of controlling families are more likely to contribute to political campaigns. • Family firms are more likely to obtain state-subsidized loans -a case of financial rent-seeking. • The entry of institutional investors crowds out the prevalence of family ties within firms. We study the political behavior of family firms, the most prevalent corporate structure across the developing world. We argue that family firms are more politically active because their longer time horizons enable them to build and sustain relationships with political actors and to extract benefits from their political investments. Combining previously untapped firm-level information on family ties in publicly listed Brazilian firms with data on corporate campaign contributions, we document that family firms are 15 percentage points more likely to contribute to political campaigns compared to non-family firms — an 82 percent increase. We also find that individuals with family ties in a firm’s leadership positions are more likely to make contributions. Contributions by family firms are more persistent over time, indicating that they reflect relationships. Family firms that contribute to campaigns are rewarded with state-subsidized loans, while those that fail to contribute face a penalty, suggesting a dynamic of reciprocity between business and state actors. Finally, we show that the entry of institutional investors has the potential to crowd out family ties within firms. The results provide empirical support to the claims of studies of comparative capitalism, while showing that the equilibria they describe are not necessarily static.

Do campaign contributions buy favorable policies? Evidence from the insurance industry

AbstractTo learn about the effects of corporate campaign contributions, we study the potential influence of the insurance industry in US state politics. The insurance industry is one of the biggest players in state politics, and we have collected new data on objective measures of the industry's performance in each state over time. We exploit within-state changes in campaign finance regulations which can significantly restrict the ability of corporate contributors to give money and potentially influence elected officials. Across a range of outcomes and campaign finance reforms, we find little evidence that the ability to make corporate campaign contributions benefits the insurance industry in a state. Some results suggest that the ability to make campaign contributions may benefit the insurance industry in states with elected insurance commissioners, but overall, campaign contributions appear to have a little distortionary effect even in a setting where we would most expect to find it.

Does Nationalist Rhetoric Help Politicians Raise Campaign Contributions?

Although research has paid significant attention to organizational reactions to formal political pressures, it remains to be understood how organizations react to political influence that is wielded through informal institutions. We argue that regulatory constraints on formal institutions increase political attention to informal institutions: social norms that facilitate the trading of favors. Politicians elicit informal favors from organizations through the use of nationalistic rhetoric. However, the social nature of informal institutions makes political influence more critical for firms that are strongly embedded in the local environment, yielding a distinction between the responses of domestic and foreign firms. A longitudinal state-wise examination of 476 firms in India showed that when institutional formalization encouraged political contests, there was an increase in corporate campaign contributions. This increase corresponded to politicians’ use of nationalistic rhetoric. While the rhetoric contributed to domestic firm contributions, foreign firms that were politically more engaged in the past became relatively insignificant. These findings highlight how informal institutions facilitate political influence on organizations, and in turn, how organizations inadvertently reinforce social fractures that redefine those very institutions.

Quid Pro Quo? Corporate Returns to Campaign Contributions

Scholars, pundits, and political reformers have long worried that corporations distort public policy and subvert the will of the electorate by donating to politicians. Well-publicized anecdotes notwithstanding, whether and how much corporations actually benefit from supporting political candidates remains unknown. To systematically address this question, we utilize two complementary empirical approaches that isolate the monetary benefits a company derives from a favored candidate winning office. First, we use a regression discontinuity design exploiting close congressional, gubernatorial, and state legislative elections. Second, we leverage within-campaign changes in market beliefs about the outcomes of US Senate races. We find no evidence that corporations benefit from electing candidates supported by their PACs, and we can statistically reject effect sizes greater than 0.3% of firm value. Our results suggest that corporate campaign contributions do not buy significant political favors—at least not on average.

Personal Financial Incentives and Corporate Campaign Contributions

Despite the well-documented benefits of political participation, few firms engage in politics. We argue that low levels of corporate political participation can be rationalized by financial incentives of employees and shareholders who are the ultimate source of corporate contributions. Since even large firm-level benefits are trivial for individuals with small equity-stakes, few people have sufficient incentives to contribute. This logic explains why corporate political contributions are relatively small and why firms seek alternative channels of political influence. Empirically, we document that corporate PACs are financially constrained and that financial incentives of individual contributors are a strong determinant of campaign contributions.

Spillovers from regulating corporate campaign contributions

Populist clamor and recent Supreme Court decisions have renewed calls for increased regulation of corporate money in politics. Few empirical estimates exist, however, on the implications of existing rules on firms’ political spending. Exploiting within firm-cycle cross-candidate variation and across firm-cycle variation, we demonstrate that the regulation of PAC campaign contributions generates large spillovers into other corporate political expenditures such as lobbying. Using both high dimensional fixed effects and regression discontinuity designs, we demonstrate that firms constrained by campaign contribution limits spend between $549,000 and $1.6M more on lobbying per election cycle, an amount that is more than 100 times the campaign contribution limit. These results demonstrate that, similar to regulations in other domains of the economy, constraining specific corporate political activities often yields unintended effects.

Corporate campaign contributions

Donations to U.S. presidential candidates by sector Top 3 pharma sector contributors to candidates for President and Congress, political parties, and independent spending groups Top 3 chemical sector contributors to candidates for President and Congress, political parties, and independent spending groups

Driving support: workers, PACs, and congressional support of the auto industry

In 2008 and 2009, the House of Representatives directed billions of dollars to the auto industry by passing a bailout and the “cash for clunkers” program. Moving beyond corporate influence via campaign contributions, we demonstrate that the presence of auto workers in a district strongly predicts legislative support for both bills. In addition to this critical legislation, we also analyze over 250 bills on which the auto industry either lobbied or took a public position. We find no patterns relating a district's workers or corporate campaign contributions to these votes on broader legislation where other groups, such as environmental advocates or labor unions, are at the table. Instead, the auto industry garners consistent support only on quasi-private, particularistic legislation. Thus, we contend that on particularistic legislation the presence of workers (not just campaign contributions) drives legislative support; however, when legislators expand the scope of conflict, the influence of a single industry is attentuated by other interests.

Corporate campaign contributions and abnormal stock returns after presidential elections

Contributions by investor-owned companies play major roles in financing the campaigns of candidates for elective office in the United States. We look at the presidential level and analyze contributions by companies before an election and their stock market performance following US presidential elections from 1992 to 2004. We find that companies experienced abnormal positive post-election returns with (i) a higher percentage of contributions given to the eventual winner and (ii) with a higher total contribution given. Hypothetical portfolios of the 30 largest corporate contributors formed according to (i) the percentage of contributions given to the winner in a presidential election and (ii) the total contribution (divided by market capitalization) would have earned significant abnormal returns in the two years after an election. While all results hold for Bill Clinton and George W. Bush, they are stronger by a magnitude of two to three under W. Bush.

The Impact of Unified Party Government on Campaign Contributions

This article examines the connection between unified party government and campaign contributions. Our central argument is that unified party government confers a substantial, but previously overlooked, fundraising advantage to intra‐chamber majority parties. We examined data on corporate campaign contributions to U.S. House incumbents and state legislators in 17 different legislative chambers. We found a strong fundraising benefit accruing to intra‐chamber majority status across all of these legislatures, but the benefit is heavily conditioned by the presence of unified or divided government. The results offer important implications for our understanding of the financial balance of power in American politics and for the vast scholarly literature on unified party government.

Corporate Campaign Contributions as a Predictor for Abnormal Stock Returns After Presidential Elections

In the U.S. campaign contributions by companies play a major role in financing election campaigns. We analyze contributions by companies before an election and stock market performance after the election for the presidential elections from 1992 until 2004. We find that (i) the percentage of contributions given to the winner in a presidential election and (ii) the total contribution (divided by market capitalization) have a significant positive impact on a company's stock market performance after an election. While under Clinton both factors were equally important, during the Bush-presidency the total contribution had comparatively more impact.

Corporate Campaign Contributions, Repeat Giving, and the Rewards to Legislator Reputation

Abstract Are politicians who follow a strategy of reputational development rewarded with high levels of corporate campaign contributions? Reputational clarity could help to reduce uncertainty about a candidate and lead to greater campaign contributions from favored interests. Alternatively, such clarity could alienate those who disagree and prevent the politician from obtaining contributions from groups on both sides of an issue. We outline an approach that considers conditions under which a politician would or would not prefer reputational development and policy‐stance clarity and consistency in the context of repeat dealing with special interests. Our proxy for reputational development is the percentage of repeat givers to a legislator. Using data on corporate political action committee (PAC) contributions to members of the U.S. House during the seven electoral cycles from 1983/84 to 1995/96, we explore a variety of alternative hypotheses and find that greater reputational development is rewarded with g...