Individual Political Contributions and Firm Performance

Abstract:     
We present evidence that individuals make political contributions strategically by targeting politicians with power to affect their economic well-being. Individuals in Congressional districts with greater industry clustering choose to support politicians with jurisdiction over the industry. Importantly, individual political contributions are associated with improvements in operating performance of firms in industry clusters. The relation between contributions and firm performance is strongest for poorly performing firms, firms closer to financial distress, and for contributions in close elections. The results imply that individual political contributions are valuable to firms, especially during bad economic times.

Number of Pages in PDF File: 51

Keywords: Political contributions, firm performance, firm value

JEL Classification: G30, G33, G38

working papers series