Corporate Political Donations Research Articles

Corporate political donations and audit fees: Some evidence from Australian audit pricing

We examine whether corporate political donations (CPDs) are associated with audit fees in the Australian setting. Our baseline results based on observations of Australian top 500 non‐financial companies show that, on average, firms with CPDs are associated with about 9% lower audit fees than firms without CPDs consistent with the strategic investment or resource dependency view. Using path analysis, we next show that high earnings quality resulting from strategic benefits of CPDs explains the association. Overall, these results confirm that firms use CPDs as strategic investments that are associated with lower earnings management, which leads to lower audit risk and hence reduced audit fees.

Citizens United vs. FEC. on the Political Policies of U.S. Senators

The increase in corporate political donations brought by Citizens United vs. Federal Election Committee (2010) has given businesses more power. Using regression analysis, I analyzed the proportions of PAC donations from businesses to incumbent senators re-elected in 2018 and 2020 in order to determine a relationship between contributions to senators and political ideology scores. Republicans were largely unaffected by the portion of business PAC donations they received, but Democratic senators who received a larger portion of PAC donations from businesses became more neutral than Democratic senators who did not receive such a high percentage of corporate PAC donations. 

Corporate political donations, board gender diversity, and corporate social responsibility: Evidence from Australia

We examine the association between corporate political donations (CPDs) and the quality of corporate social responsibility (CSR) disclosures by the Australian Stock Exchange (ASX) listed firms. We also explore the effect of board members’ gender diversity on this association. Consistent with legitimacy and neopluralist argument, we report a negative association between corporate political donations and the quality of CSR disclosures. Furthermore, board gender diversity acts as the moderator and mitigates the negative association between political donations and CSR disclosures. We also find that it requires more than one female director to moderate the association between CPDs and CSR disclosures which provides support to the critical mass theory. Our additional analysis reveals that the negative association between CPDs and the quality of CSR disclosures is stronger for the resource industry, and the proportion of female directors has an insignificant effect on this association.

The Value of Corporate Political Donations: Evidence from the Capitol Riot

Corporate political action committees donate about $300 million to federal political candidates each election cycle, but research offers mixed evidence on the value of these contributions. We estimate the value of firms' campaign contributions by studying the decision of 159 S&P 500 companies to stop donations following a riot in the U.S. Capitol building. Average cumulative abnormal returns over the two days following firms' announcements to halt donations were -0.6 percent. There is no significant relationship between the magnitude of abnormal returns and (a) the amount of political contributions, (b) the intensity of regulation in a firm's industry, (c) the firm's lobbying expenditures, or (d) the firm's score on governance and political accountability indexes. Analysis of campaign donations following the riot shows that firms mostly honored their pledge to stop donations, at least for the first quarter of 2021. Together, the results suggest campaign donations by corporate political action committees have small effects on firm value.

Political catastrophe and firm strategies: Evidence from the capitol riot

This study explores firms’ reactions to the 2021 U.S. Capitol Attack. We find that firms donating more to the 147 Republicans who voted to overturn the 2020 presidential election are more likely to speak out against the Capitol Attack to suspend political contributions. By doing so, firms mitigate negative stock market reactions and subsequently lower their political risk. Suspension of corporate political donations has profound impacts on the 147 Republicans that they almost lost all political contributions from private sectors right after the Capitol Attack. Our findings suggest that, when facing unexpected political catastrophes, firms make strategic political activist actions.

Disclosure of corporate political donations and expenditure to shareholders: Why South Africa should follow the United Kingdom’s legislative approach

Whilst corporate political donations and expenditure is legally permissible in South Africa, and whilst some companies may be making such donations and incurring such expenditure for valid reasons, corporate political donations and expenditure is frequently associated with secrecy and poor corporate governance practices within companies. One strategy that some corporate-law jurisdictions have adopted to regulate corporate political donations and expenditure is to require company boards to disclose relevant information about such donations and expenditure directly to their shareholders. However, South African law currently does not require companies to disclose their political donations or expenditure directly to the shareholders, either in the annual financial statements, or in the directors’ report that must be included in the annual financial statements, or in the annual report. Following an examination of key policy considerations relevant to the disclosure of corporate political donations and expenditure to shareholders, and an examination of the legislative approach in the UK, the article argues for the effective disclosure of corporate political donations and expenditure to shareholders under the Companies Act 71 of 2008. It then makes detailed recommendations on how such disclosure requirements could be introduced and implemented in South Africa.

The Value of Corporate Political Donations: Evidence from the Capitol Riot

The Value of Corporate Political Donations: Evidence from the Capitol Riot

Partisan Consumerism: Experimental Tests of Consumer Reactions to Corporate Political Activity

To what extent do consumers’ preferences change when they learn about firms’ partisan allegiances? We address this question by conducting a series of experiments in which Democrats and Republicans were presented with factual information about corporate political donations. Outcomes were measured through expressed shopping intentions as well as a revealed consumer preference. Respondents became significantly more (less) likely to patronize chains that support (oppose) their party. The effects are found for both convenience samples and representative national samples and when information is conveyed in the context of a survey or unobtrusively via direct mail. Effects are especially large among those with strong partisan attachments. We conclude by arguing that the potential for partisan consumerism has risen with the advent of social media but may be undermined by a campaign finance system that increasingly allows for undisclosed corporate donations.

Downsides of Corporate Political Connections: Evidence from Mass Shootings

This paper studies the negative impacts of corporate political connections on firm outcomes. Employing 20 years of mass shootings, I find that when mass shootings take place, companies that primarily support gun-rights politicians experience negative stock price reactions and worse operating performance. Depending on the number of fatalities in a mass shooting, one-week cumulative abnormal returns are about 1% to 2.5% lower for these firms. The operating performance of these firms also shows a substantial decline after mass shootings. The decline lasts for at least one year. After mass shootings, firms significantly reduce corporate political donations to gun-rights politicians. Further tests suggest that damage to corporate reputations rather than loss of corporate political connections to gun-rights politicians explain the findings.

Why Do Firms Engage in Politics? The Role of External Oversight

We examine the association between external managerial oversight and corporate political donations. Employing a propensity score matching methodology with firm fixed effects, we find that oversight by institutional investors as well as equity analysts is positively associated with political donations. These results suggest that corporate political donations benefit shareholders and are a form of strategic investment. In additional analysis, we find that political contributions benefit the donating firm’s stock price performance when the firm operates in a highly regulated environment, and that donating firms receive more federal government support. Our results suggest that corporate political activism is a value enhancing endeavor.

Australian corporate political donation disclosures

Purpose A primary tool for managing the democratic risks posed by political donations is disclosure. In Australia, corporate donations are disclosed in government databases. Despite the potential accountability benefits, corporations are not, however, required to report this information in their annual or stand-alone reports. The purpose of this paper is to investigate the quantity and quality of voluntary reporting and seek to add to the nascent theoretical understanding of voluntary corporate political donations. Design/methodology/approach Corporate donors were obtained from the Australian Electoral Commission database. Annual and stand-alone reports were analysed to determine the quantity and quality of voluntary disclosures and compared to O’Donovan’s (2002) legitimation disclosure response matrix. Findings Of those companies with available reports, only 25 per cent reported any donation information. Longitudinal results show neither a robust increase in disclosure levels over time, nor a clear relationship between donation activity and disclosure. The findings support a legitimation tactic being applied to political donation disclosures. Practical implications The findings suggest that disclosure of political donations in corporate reports should be mandatory. Such reporting could facilitate aligning shareholder and citizen interests; aligning managerial and firm interests and closing disclosure loopholes. Originality/value The study extends the literature by evaluating donation disclosures by companies known to have made donations, considering time-series data and theorising the findings.

Political donations and political risk in the UK: Evidence from a closely-fought election

Abstract UK regulation discourages corporate political donations but is relatively benign in respect of individual donations. Few UK listed companies make political donations but many more company directors do. We use a unique, hand-collected dataset of political donations to examine whether UK corporate political connections are perceived as being created indirectly via directors’ personal donations. Basing our tests on the sensitivity of company returns to opinion polls preceding the 2010 General Election we find that, on average, firms in industries which donate only to the Conservative Party exhibit higher sensitivity to the electoral success of the Conservatives. However, within industries, there is no consistent evidence that the firms which employ directors who make these donations exhibit higher sensitivity than firms which do not. We justify basing our inferences on return sensitivity to polls by confirming that UK domestic political risk, as proxied by opinion poll changes, is priced around General Elections.

Motives of corporate political donations: industry regulation, subjective judgement and the origins of pragmatic and ideological corporations.

What motivates corporate political action? Are corporations motivated by their own narrow economic self-interest; are they committed to pursuing larger class interests; or are corporations instruments for status groups to pursue their own agendas? Sociologists have been divided over this question for much of the last century. This paper introduces a novel case - that of Australia - and an extensive dataset of over 1,500 corporations and 7,500 directors. The paper attempts to understand the motives of corporate political action by examining patterns of corporate political donations. Using statistical modelling, supported by qualitative evidence, the paper argues that, in the Australian case, corporate political action is largely motivated by the narrow economic self-interest of individual corporations. Firms' interests are, consistent with regulatory environment theory, defined by the nature of government regulation in their industry: those in highly regulated industries (such as banking) and those dependent on government support (such as defence) tend to adopt a strategy of hedging their political support, and make bipartisan donations (to both major parties). In contrast, firms facing hostile regulation (such as timber or mining), and those without strong dependence on state support (such as small companies) tend to adopt a strategy of conservative partisanship, and make conservative-only donations. This paper argues that regulatory environment theory needs to be modified to incorporate greater emphasis on the subjective political judgements of corporations facing hostile regulation: a corporation's adoption of conservative partisanship or hedging is not just a product of the objective regulation they face, but also whether corporate leaders judge such regulation as politically inevitable or something that can be resisted. Such a judgement is highly subjective, introducing a dynamic and unpredictable dimension to corporate political action.

Improving Corporate Political Donations Disclosure: Lessons from Australia

ABSTRACTOne of the activities corporations should be accountable for is their level of political donations. This paper examines two mandatory corporate political donation disclosure regimes in Australia and identifies three important lessons. First, our review confirms that although few citizens may care enough to scrutinise donation disclosure, there are people interested in such information and we should take political donation disclosure regimes seriously. Second, a well-funded entity must be made responsible not just for administering the disclosure system, but also for reviewing and recommending updates to the system. One disclosure regime examined in this paper was never updated to reflect the existence of the internet until 2007, because no-one was responsible for monitoring the regime and suggesting necessary updates. Finally, details concerning the ultimate source of donations should be provided.

Corporate Political Donations: Influences from Directors’ Networks

Motivated by contemporary debates concerning whether directors inappropriately deploy corporate funds for corporate political donations and the limited research into managerial influence on corporate political donations, we examine the impact of director influences from a network perspective. Using a sample of large listed Australian corporations and their political party donation activity during 2000–2007, we find that both the professional and non-professional networks of directors influence corporate political donations. We observe these influences in relation to donations at the federal and state levels, and with respect to the choice of recipient political parties.

How Corporate Political Spending Strains the Limits of the Business Judgment Rule

A number of agency issues arise when a corporation chooses to exercise its freedom of speech by making donations to a super PAC or other political organization. This article draws a distinction between contributions designed to influence legislation and regulation of the corporation and political donations that corporations justify as goodwill or community outreach. Analyzing the issue with an emphasis on the duty of loyalty, the article argues that much corporate political spending cannot really be understood as a business decision that should enjoy the protection of the business judgment rule. It also reflects on the Supreme Court’s recent decision in Hobby Lobby to illuminate the nature of much corporate political spending. The article concludes that greater scrutiny of corporate political donations under the law of fiduciary duties will have two positive benefits: 1. it will prevent spending that is designed to enrich the corporate decision makers themselves; and 2. it will shine more light on spending that helps advance a corporation’s own interests at the expense of the public good.

Corporate Political Speech: How Nigeria Threw Away the Baby with the Bath Water: Any Lesson from Citizens United?

This paper examines the concept of Corporate Political Speech in a Democracy. Corporation being a legal person is clothed with distinct attributes necessary for its existence as a person and for the realization of its goals and objectives. The paper reasons that Corporation must speak out in politics to influence ideas and enrich debates in the political marketplace. As a person, the Corporation is entitled to rights to free speech. Unfortunately in Nigeria, the message is blatant and uncompromising a business corporation has no business in politics. It must follow political debates and policies sheepishly and slavishly without a voice. The paper finds that the blanket-ban on Corporate Political Donations in Nigeria has bred a black market for corporate speech. It juxtaposes the Nigerian position with the US jurisdiction with a view to finding a suitable model for Nigeria’s nascent democracy.

Managing the Risks of Corporate Political Donations: A Utilitarian Perspective

This paper applies a utilitarian analysis to corporate political donations. Unlike the more common rights-based analyses, it is argued that the optimal policy is the one that best satisfies society’s rational preferences concerning donor influence, adequate financing, donor pressure and the cost of maintaining and enforcing the democratic system. This analysis suggests that a ban is best if it would be generally observed and sufficient financing from other sources is available, otherwise a donation cap is a better option. Further, lobbyists should be banned from donating small gifts and drafting bills for candidates. The impact of disclosure and other risk management mechanisms are also considered.

Corporate Political Donations: Investment or Agency?

We examine corporate donations to political candidates for federal offices in the United States from 1991 to 2004. Firms that donate have operating characteristics consistent with the existence of a free cash flow problem, and donations are negatively correlated with returns. A $10,000 increase in donations is associated with a reduction in annual excess returns of 7.4 basis points. Worse corporate governance is associated with larger donations. Even after controlling for corporate governance, donations are associated with lower returns. Donating firms engage in more acquisitions and their acquisitions have significantly lower cumulative abnormal announcement returns than non-donating firms. We find virtually no support for the hypothesis that donations represent an investment in political capital. Instead, political donations are symptomatic of agency problems within firms. Our results are particularly useful in light of the Citizens United ruling, which is likely to greatly increase the use of corporate funds for political donations.

Corporate Political Donations: Investment or Agency?

We examine corporate donations to political candidates for federal offices in the United States from 1991 to 2004. Firms that donate have operating characteristics consistent with the existence of a free cash flow problem, and donations are negatively correlated with returns. A $10,000 increase in donations is associated with a reduction in annual excess returns of 7.4 basis points. Worse corporate governance is associated with larger donations. Even after controlling for corporate governance, donations are associated with lower returns. Donating firms engage in more acquisitions and their acquisitions have significantly lower cumulative abnormal announcement returns than non-donating firms. We find virtually no support for the hypothesis that donations represent an investment in political capital. Instead, political donations are symptomatic of agency problems within firms. Our results are particularly useful in light of the Citizens United ruling, which is likely to greatly increase the use of corporate funds for political donations.