Determinants and Effects of Corporate Lobbying

Abstract:     
This study examines the determinants and shareholder wealth effects of corporate lobbing. We find that lobbying behavior is related to firm size, investment opportunities, and industry affiliation. Lobbying is unrelated to cash flow unlike other forms of political spending, which is inconsistent with lobby spending arising from agency problems. Evidence suggests lobbying is lucrative and calls into question investor relation groups that criticize this form of corporate political spending. After controlling for factors known to influence firm-value, results indicate the market value contribution of an additional dollar of lobbying is roughly $200. The market value of lobbying results are robust to endogeneity concerns (self selection as well as time invariant and variant omitted variables bias).

Keywords: Lobbying, Lobby, Firm Value, Market Value

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