PAC Contributions Research Articles

PAC Contributions, Performance, and Downsizing: Constraining Effect of Corporate Political Activity

PAC Contributions, Performance, and Downsizing: Constraining Effect of Corporate Political Activity

Foreign lobbying through domestic subsidiaries

AbstractHow much of lobbying activities disclosed under the Lobbying Disclosure Act (LDA) actually represent foreign clients? What are their interests? By identifying the global ultimate owners of all corporate clients filing with the LDA, I find that majority‐owned subsidiaries of foreign multinational corporations (MNCs) account for nearly 20% of corporate lobbying spending in 2015–2016. This amount is comparable to the entire foreign lobbying spending reported under the Foreign Agents Registration Act (FARA). Domestic subsidiaries of foreign MNCs are also found to lobby more frequently and spend more lobbying than American multinationals, after controlling for firm size, industry, and PAC contributions. These subsidiaries actively lobby on issue areas that clearly benefit their foreign parents. The findings suggest that foreign MNCs may actively influence U.S. policies through their domestic subsidiaries, and that the FARA captures only part of foreign lobbying in the United States.

U.S. banks’ IPOs and political money contributions

This study analyses the effect of political money contributions on U.S. banks’ IPOs. We employ unbalanced panel data of 367 U.S. banks’ IPOs for the period January 1998 to December 2019. Our findings reveal that investors perceive Political Money Contributions (PMC) by U.S. banks as a proxy for political reach and connectedness. We document an inverse relationship between total PMC and the level of underpricing, which implies that both lobbying and PAC expenditure pay off on issue day as donors incur less underpricing. Initial returns decrease with PAC contributions to House of Representatives candidates, whereas the returns relate to the partisan identity of the candidates receiving PAC contributions. We document that those individual contributions by directors bring significant benefits to the IPO banks. Finally, we show that the political contributions of board members, particularly those of CEOs and founders, are associated with better returns in the long term.

Audit firm political connections and PCAOB inspection reports

We examine the effect of audit firm political connections on the harshness of Public Company Accounting Oversight Board (PCAOB) inspection reports. Relying on Regulatory Capture Theory and Motivated Reasoning Theory, we show audit firm political connections, as measured through PAC contributions, are negatively associated with the harshness of Part I reports. Our results are robust to instrumentation and are not due to movements of personnel between the PCAOB and audit firms or improvements in a firm's audit quality. In supplementary tests, we show the negative relation is stronger when we consider the directed nature of PAC contributions to members of Congress who exercise SEC oversight and robust to alternative measures. Finally, we consider the harshness of Part II inspection reports and find no association with political connections. Collectively, our results suggest audit firm political connections induce favorable influence over Part I findings of PCAOB inspection reports.

Returns to Seeking Political Influence: Early Evidence from the COVID-19 Stimulus

Measuring various ways of seeking political influence and potential monetary return from such an endeavor is difficult. To address that challenge, we collect data on four mechanisms of acquiring political influence: lobbying spending, PAC contributions, lobbying through trade associations, and an invitation to testify in Congress for 10 years spanning 2010-2020. We investigate associations between these four mechanisms benefits from the largest stimulus package passed by Congress to address COVID-19. The odds of receiving governmental assistance for publicly listed firms that seek political influence are 94.2% for those who lobby directly, 170.7% higher for those who give PAC contributions, and 77.3% higher for those that lobby through a trade association. Beneficiary organizations of all stripes received from $3.26 (for lobbying) to $51.28 (for PAC contributions) of additional COVID-19 stimulus for each dollar they spent on political influence. Government organizations, which are usually not studied in the literature, earned larger returns to their political influence spending relative to public companies. Generally, a dollar spent on political influence by 2,758 unique firms on COMPUSTAT is associated with $20.67 of higher annual earnings in the future. This return is orders of magnitude larger than the payoff to R&D or advertising. Our work highlights how lucrative political influence can be for firm value.

Does Corporate Political Activity Make TMT’s Expressed Attention to CSR Louder and Clearer?

The impact of corporate political activity (CPA) appears to be a gap in the CSR literature. Drawing on the communicative constitution of organization (CCO) theory, which argues that communication is a dynamic process capable of changing organizational reality, we investigate under what conditions top managers’ attention to CSR when expressed publicly results in firm CSR actions. Using multiple secondary databases for the U.S. publicly-traded firms, we found the expressed attention-CSR strength relationship to be more profound where firms have high levels of PAC contributions while lobbying expenditures indicate a less profound relationship. For the measurement of expressed TMT attention to CSR, we adopted supervised learning-based content analysis, which develops classifiers by relying on probabilistic algorithm and is widely applied to various research areas. This study will contribute both theoretically and practically by expanding CCO theory to CPA research and by providing a framework which helps practitioners distinguish between sincere CSR communications and insincere greenwashing.

Polarized Pluralism: Organizational Preferences and Biases in the American Pressure System

For decades, critics of pluralism have argued that the American interest group system exhibits a significantly biased distribution of policy preferences. We evaluate this argument by measuring groups’ revealed preferences directly, developing a set of ideal point estimates, IGscores, for over 2,600 interest groups and 950 members of Congress on a common scale. We generate the scores by jointly scaling a large dataset of interest groups’ positions on congressional bills with roll-call votes on those same bills. Analyses of the scores uncover significant heterogeneity in the interest group system, with little conservative skew and notable inter-party differences in preference correspondence between legislators and ideologically similar groups. Conservative bias and homogeneity reappear, however, when weighting IGscores by groups’ PAC contributions and lobbying expenditures. These findings suggest that bias among interest groups depends on the extent to which activities like PAC contributions and lobbying influence policymakers’ perceptions about the preferences of organized interests.

The polarization dynamics of electoral reforms

AbstractElectoral reforms affect legislative outcomes by influencing incumbent legislators’ behavior, new entrants’ behavior, and the probability that incumbents are replaced with new entrants. Empirical work on electoral reforms and polarization has focused on new entrants’ behavior. We employ a simple decision theoretic framework with partial incumbent policy persistence and spatial voting to examine the three channels jointly. We show that a reform designed to encourage ideological moderation produces larger effects on polarization when the reform is implemented than when it is removed. The key insight is that implementing a moderation-inducing reform generates a set of challengers who are more likely to defeat incumbents while the incumbents are more likely to win reelection when the reform is removed. We then empirically examine how elections and legislative polarization respond to unlimited PAC contributions in state legislatures. Examining incumbents’ decisions to stand for reelection, the electoral performance of incumbents who do run, and partisan polarization, we find empirical support for our predictions.

Why Limits on Contributions to Super PACS Should Survive Citizens United

Soon after the Supreme Court decided Citizens United v. FEC, the D.C. Circuit held all limits on contributions to super PACs unconstitutional. Its decision in SpeechNow.org v. FEC created a regime in which contributions to candidates are limited but in which contributions to less responsible groups urging votes for these candidates are unbounded. No legislator voted for this system of campaign financing, and the judgment that the Constitution requires it is astonishing. Forty-two years ago, Buckley v. Valeo held that Congress could limit contributions to candidates because these contributions are corrupting or create an appearance of corruption. According to the D.C. Circuit, however, Congress may not prohibit multi-million-dollar contributions to satellite campaigns because these contributions do not create even an appearance of corruption. The D.C. Circuit said that a single sentence of the Citizens United opinion compelled its result. It wrote, “In light of the Court’s holding as a matter of law that independent expenditures do not corrupt or create the appearance of corruption, contributions to groups that make only independent expenditures also cannot corrupt or create the appearance of corruption.” This Article contends that, contrary to the D.C. Circuit’s reasoning, contributions to super PACs can corrupt even when expenditures by these groups do not. Moreover, the statement that the D.C. Circuit took as its premise was dictum, and the Supreme Court did not mean this statement to be taken in the way the D.C. Circuit took it. The Supreme Court’s long-standing distinction between contribution limits and expenditure limits does not rest on the untenable proposition that candidates cannot be corrupted by funds paid to and spent on their behalf by others. Rather, Buckley noted five differences between contributions and expenditures. A review of these differences makes clear that contributions to super PACs cannot be distinguished from the contributions to candidates whose limitation the Court upheld. The ultimate question posed by Buckley is whether super PAC contributions create a sufficient appearance of corruption to justify their limitation. This Article reviews the statements of candidates of both parties in the 2016 presidential election, the views of Washington insiders, and public opinion polls. It shows that SpeechNow has sharpened class divisions and helped to tear America apart. he Justice Department did not seek Supreme Court review of the SpeechNow decision. In a statement that belongs on a historic list of wrong predictions, Attorney General Holder explained that the decision would “affect only a small subset of federally regulated contributions.” Although eight years have passed since SpeechNow, the Supreme Court has not decided whether the Constitution guarantees the right to give unlimited funds to super PACs. A final section of this Article describes the efforts of members of Congress and candidates for Congress to bring that question before the Court. The Federal Election Commission is opposing their efforts, offering arguments that, if accepted, would be likely to keep the Court from ever deciding the issue.

Do Unions Punish Democrats? Free-Trade Votes and Labor PAC Contributions, 1999–2012

This article examines whether labor unions punish incumbent Democrats who vote for free-trade bills in Congress. We theorize that punishment is a risky strategy for interest groups that prefer one party over the other. Therefore, interest groups must be substantially affected by decline in party support to punish. Consistent with our theory, we find important differences between public- and private-sector unions in their willingness to punish. Although public-sector unions articulate opposition to free trade, they do not follow through with either deterrence (withholding contributions to send a signal) or incapacitation (withholding contributions to replace the wayward candidate with a more supportive one). Private-sector unions, specifically unions that organize trade-vulnerable industrial workers, do attempt to punish Democrats via deterrence. The estimated deterrence effect is a 6 percent reduction in contributions. This study improves on previous studies by modeling punishment across several congressional sessions and multiple trade votes. The results reveal new insights into labor’s approach to declining protectionism among congressional Democrats.

Would You Mind Tossing Me That Life Preserver? Corporate Political Activity and Firm Survival

Research on firm-level performance outcomes of corporate political activity (CPA) has yielded mixed results. While theory convincingly argues that a firm should enjoy performance benefits associated with its investment in CPA, consistent empirical results have been more difficult to demonstrate. This paper argues that the lack of findings are a result of the mismatch between what a firm’s investment in CPA seeks to achieve and what policy makers can actually do. Leveraging ideas from institutional theory and resource dependence theory, this research proposes that a firm’s investment in CPA may yield the greatest benefits to the firm by enhancing its likelihood of survival while other firm’s that don’t invest in CPA are more likely to fail. Considering 27 years of data from large U.S. firms, we find that corporate lobbying and corporate PAC contributions enhance a firm’s survival probabilities. We also find that this relationship is strengthened when the firm’s CEO makes political contributions.

Bankruptcy reform and congressional action: The role of organized interests in shaping policy

This paper tests the degree to which PAC contributions can influence voting outcomes on legislation that disproportionately influences the poor. Using passage of the Bankruptcy Abuse and Consumer Protection Act of 2005 in the House of Representatives, the results show an association between PAC campaign contributions from the financial industry and support for final passage of bankruptcy reform. The findings suggest that one source of underrepresentation of the poor may be donations made by interest groups during campaigns.

Policy risk, corporate political strategies, and the cost of debt

We examine how political geography affects firms' cost of debt. Local policy risk, measured by proximity to political power reflected in firms' position in the country's political map, is positively related to firms' cost of debt. Employing a difference-in-difference-in-differences (DDD) estimation around presidential elections, we find that firms headquartered in states that become more aligned with the president after elections are exposed to more policy risk and thus incur higher yield spreads. Firms can manage policy risk by engaging in corporate political strategies. Consistent with the view that such political strategies protect firms against uncertainty about future policies, we find policy risk has less of an impact on a firm's cost of debt when the firm makes more PAC contributions or spends more money on lobbying.

Intermediate Scrutiny for Corporate Political Contributions

A corporation contributes to a Super PAC that supports a candidate for public office. A shareholder sues, alleging that management breached its duty of loyalty by making the contribution to promote its own political views rather to serve than the corporation’s best interests — i.e., by acting in bad faith. What standard will a Delaware court apply when reviewing management’s decision to cause the corporation to make the contribution?Myriad scholars have opined that the court will apply the standard of review for ordinary business decisions: the management-friendly business judgment rule. Unfortunately for our shareholder plaintiff, this rule presumes that management acts rationally, without a conflict of interest — and in good faith. Further, management can easily concoct a justification for supporting any major-party political candidate. Thus, absent a “smoking gun” that points to bad faith, it will be extremely difficult for a shareholder to prove that management has acted disloyally. This article departs from the scholarly consensus that courts should apply the business judgment rule to review corporate political contributions. Instead, courts should apply the intermediate level of scrutiny — the Unocal test — that is applied whenever management adopts defensive measures in the face of a hostile takeover. Delaware courts apply Unocal to defensive measures due to the “omnipresent specter” that management will promote its own interests over the corporation’s best interest. Under Unocal, management must earn the protection of the business judgment rule by establishing the reasonableness and proportionality of its defensive actions. Courts evaluating management’s decision to make a Super PAC contribution should apply Unocal for two related reasons. First, like corporate charitable donations, corporate political contributions give rise to serious agency cost concerns. These same concerns led prior commentators to propose applying intermediate scrutiny to charitable contributions; post-Citizens United, this proposal should be updated to include corporate political contributions. Second, upon closer review, corporate Super PAC contributions give rise to greater agency cost concerns than corporate charitable gifts, due to the increased potential of management pretext in the former context. Indeed, although corporate Super PAC contributions do not pose an inherent conflict between management and the corporation, the possibility of pretext is so great that there an “omnipresent specter” that management will serve its own purposes whenever it causes the corporation to make a political contribution.Therefore, by analogy to Unocal, a court evaluating a corporate political contribution should ask (1) whether management had reasonable grounds to believe that the contribution would directly or indirectly advance specific corporate interests, rather than some general political viewpoint; and (2) whether the contribution was reasonable, both as a method of addressing the specific corporate interest and in its amount. Only if management can show that the political contribution satisfies both prongs should it be protected by the business judgment rule.

Leadership Power in Congress, 1890-2014: Evidence from PAC Contributions and Newspaper Coverage

For decades, scholars have studied the relative power of parties and committees in the U.S. Congress. An influential theory, Conditional Party Government (CPG), hypothesizes that as intra-party preferences converge and inter-party preferences diverge, rank-and-file members and committees transfer power to party leaders. Most previous tests of CPG and other theories of party power rely on roll call votes to measure both the distribution of preferences within the chamber and the relative power of party leaders. We propose an alternative that assesses shifts of power within Congress by using PAC contributions and newspaper coverage. Since PACs are sophisticated donors who target their contributions to gain access and influence in Congress, following the money allows us to construct a measure of relative power. During the period 1978-2014, we find that party leaders receive an increasing share of the donations over time at the expense of committee leaders and rank-and-file. The share of PAC donations to party leaders closely tracks standard measures of CPG. Another measure of power, based on newspaper coverage, produces similar patterns for an even longer period, from 1890-2014. Overall, our results provide strong support for the CPG theory.

Does the Gift Keep on Giving?: House Leadership PAC Donations Before and After Majority Status

The proliferation of external campaign financing at the expense of party financing has been thought of as a driver of political polarization. Party leaders face an immense tradeoff financing non-incumbent races when the party is out of power: while they care about gaining control of the House, they do not know how manageable a potential representative will be once elected. Leadership PAC (LPAC) contributions are a major mechanism of leadership control over the financing of congressional campaigns, with the hope of gaining influence over the future behavior of candidates. Using FEC contribution data from the 2006-2012 House elections and a new dataset that estimates candidate ideal points based on campaign finance donations the candidates received, we study differences between contributions of the LPACs of leaders and non-leaders of both parties, with distinction between when the party tries to regain or retain power. We find that the strength of ideologically extreme giving by party leaders is largely contingent on the electoral conditions of the election overall. Minority party leaders are generally incentivized to support more ideologically extreme candidates than when in the majority. We are directly interested in the impact of such donations on the propagation of ideologically extreme representatives, specifically how the weakening of tools of party leadership control over their members propels polarization.

Limiting Political Contributions after McCutcheon, Citizens United, and SpeechNow

There was something unreal about the opinions in McCutcheon v. FEC. These opinions examined a series of strategies for circumventing the limits on contributions to candidates imposed by federal election law, but they failed to notice that the limits were no longer breathing. The D.C. Circuit’s decision in SpeechNow.org v. FEC had created a far easier way to evade the limits than any of those the Supreme Court discussed. SpeechNow held all limits on contributions to super PACs unconstitutional.This Article argues that the D.C. Circuit erred; Citizens United v. FEC did not require unleashing super PAC contributions. The Article also considers what can be said for and against a bumper sticker’s declarations that “MONEY IS NOT SPEECH!” and “CORPORATIONS ARE NOT PEOPLE!” It proposes a framework for evaluating the constitutionality of campaign-finance regulations that differs from the one currently employed by the Supreme Court. And it proposes a legislative scheme of campaign-finance regulation that would effectively limit contributions while respecting the Supreme Court’s campaign-finance decisions.

Upstream influence: The positive impact of PAC contributions on Marcellus Shale roll call votes in Pennsylvania

Political scientists have long tried to explain how interest group lobbying and political action committee campaign donations affect election outcomes and public policy debates. Unfortunately, they are often met with null or conflicting results. Consequently, scholars have tested the influence of campaign donations on Congressional outcomes in different parts of the policy-making process, such as roll call votes and committee hearings. Building on these findings, I use the adoption of a Marcellus Shale impact fee in Pennsylvania to test whether campaign contributions have a different effect on bill amendment roll call votes than final floor votes. Given the differing political contexts of these two votes, it stands to reason that there is variation in the relationship between campaign donations and member voting behavior. Specifically, I expect that legislators have more flexibility in voting on amendments than on final bills, and thus factors other than party, including campaign funding, are also relevant. I find that while party, ideology and tenure are the only significant factors associated with roll call votes on final bills, campaign contributions and local-level salience are positively associated with voting on amendments. This shows that while moneyed interests may not be successful in stopping undesirable legislation, they can achieve legislative victory by shaping the bill as it travels through the legislature.

Shareholder Derivative Suits to Challenge Corporate Super PAC Contributions: A Closer Look

Management has exclusive domain over a corporation's day-to-day affairs; shareholders play no role in ordinary business decisions. Thus, in a post-Citizens United world, management may cause a corporation to contribute to a Super PAC without any shareholder input. If a shareholder discovers the contribution and objects, her only options under state corporation law are to elect a new board, her shares or sue management for breach of fiduciary duty – i.e., vote, or sue.Unfortunately, for most shareholders of publicly traded corporations, neither vote nor sell is an effective response a Super PAC contribution. Ousting the board is not an option due to the collective action problem. Selling one's shares also is no remedy because the stock market will already know of and have reacted to the contribution.But what about sue? Many corporate law scholars have summarily rejected this option, urging that management's decision to make the contribution would be protected by the business judgment rule. Yet, no such scholar has thoroughly analyzed this issue.Bucking this trend, two authors recently have urged that shareholders could successfully sue to challenge a corporate Super PAC contribution. However, these commentaries have been ignored in the law reviews and summarily panned in the blogosphere, leaving the idea largely unexamined. This Article remedies that oversight.After close scrutiny, one of the two theories proffered in these two papers – waste – is a sure loser in all but the most extreme circumstances. There is simply no good argument that a typical corporate Super PAC contribution meets the nearly-impossible-to-satisfy waste standard.By contrast, the second theory – self-dealing – may be viable if the candidate supported by the Super PAC advocates policies that favor the financial interests of management over those of most Americans. Yet, although self-dealing is a better theory than waste, it is nonetheless uncertain to succeed due to the attenuated causal connection between any Super PAC contribution and any potential financial benefit to management.As such, a shareholder derivative lawsuit challenging a Super PAC contribution faces long odds – unless, perhaps, she advances a theory other than waste or self-dealing.

The political economy of “currency manipulation” bashing

In recent years, one of the most frequently debated issues in Congress has been the value of the Chinese renminbi (RMB) relative to the U.S. dollar. Many members of Congress often accuse China of being a “currency manipulator.” This paper has two objectives. First, it investigates the extent to which PAC contributions from key interest groups as well as constituent interests influence the frequency with which members of Congress criticize China's exchange rate policy, controlling for other factors. The results indicate that the odds that a congressman will call China a “currency manipulator” are 1.35 times higher for every $5000 in PAC contributions from groups that favor legislation against China. In addition, the results show that a one percentage point increase in the share of the congressional district labor force in manufacturing is associated with a 19.6% increase in the likelihood that the district's legislator will label China a “currency manipulator.” Second, this paper investigates the consequences that “currency manipulation” bashing may have on the rate at which the RMB appreciates against the U.S. dollar. The results for a VAR model indicate that an increase in the incidence of “currency manipulation” bashing appears to temporarily slow down, rather than accelerate, the rate at which the renminbi appreciates against the dollar. This result suggests that bashing China may actually be counterproductive.