Corporate Lobbying and Financial Performance

Abstract:     
Corporate lobbying activities are designed to influence legislators and thus to further company goals by encouraging favorable policies and/or outcomes. Using data that became available after the passage of the Lobbying Disclosure Act of 1995, this study evaluates the effectiveness of corporate lobbying from a financial perspective. Evidence from panel regressions suggests that lobbying intensity is positively related to the average firm's accounting-based financial performance. These results continue to hold when we explicitly model the decision to lobby in a Heckman sample selection framework. We also present market performance evidence using a portfolio approach, which compares excess returns of firms that lobby with control portfolios of firms based on size and book-to-market, and of non-lobbying firms. We find that portfolios of firms with the highest lobbying intensities significantly outperform their benchmarks in the three years following portfolio formation.

Keywords: Lobby, Corporate political activity, Firm performance, portfolio

JEL Classifications: G3, G14, G18, M41

Working Paper Series