Corporations might want to reconsider throwing large sums of money at Washington.
That's because these contributions correlate with poor company performance, according to the draft paper of a recent study, entitled "Corporate Political Donations: Investment or Agency?". Rajesh K. Aggarwal and Tracy Wang from the University of Minnesota and Felix Meschke from the University of Kansas examined corporate donations given to political candidates for federal offices from 1991 to 2004 and found that for every additional $10,000 a firm contributed, its stock market price dropped 7.4 basis points below expectation. Corporations that donated large sums of money were also linked to poor governance and agency problems, the study found.
The findings are especially significant in light of Citizens United, a 2008 Supreme Court decision that opened the doors for corporate political expenditures. Companies have increasingly tried to create partnerships with political leaders through contributions to campaigns in an aim to impact the political process in ways that are favorable to their business performance. Most recently, large players in the oil and gas industry have increased campaign contributions to the Republican Party in an effort to circumvent federal regulations.
The study's findings may surprise, particularly because many other reports have found that increased political giving and lobbying often work to corporations' benefit. Companies that have increased the amount they spend on lobbying and campaign contributions have pocketed millions of dollars in tax breaks, according to a recent report from the Citizens for Tax Justice. The largest beneficiaries were 30 large corporations that received $67.9 billion in tax subsidies and had also spent about half billion dollars on federal lobbying, CTJ reports.
Similarly, a 2009 draft paper, entitled "Determinants and Effects of Corporate Lobbying," found the more time a firm has spent lobbying, the more likely they are to have larger corporate returns. Robert A. Van Ness and Matthew D. Hill from the University of Mississippi, G. Brandon Lockhart from University of Nebraska-Lincoln and G. W. Kelly from Mississippi State University conducted the study.
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