Political Values, Culture, and Corporate Litigation
Florida State University - College of Business
Florida State University - The College of Business
University of Miami - School of Business Administration
November 29, 2012
Using one of the largest samples of litigation data to date, we examine whether the political culture of a firm determines its propensity for corporate misconduct. Our measure of political culture is based on the political contributions of top managers, firm PACs, and its local residents. We find that, consistent with the Democratic ideology that places greater value on equal opportunity, humanitarianism, and protection of the environment, firms with Democratic culture are less likely to be the subject of environmental, labor, or civil rights-related litigation. In contrast, consistent with the core Republican value of self-reliance that supports business, property rights, market discipline, and limited government regulation, firms with Republican culture are less likely to be the subject of litigation related to securities fraud and intellectual property rights violations. Upon litigation filing, firms with Republican culture typically experience a more negative market reaction. These findings suggest that although political culture determines the propensity of different types of corporate misconduct, these cross-sectional differences are not fully recognized by stock market participants.
Number of Pages in PDF File: 44working papers series
Date posted: March 4, 2012 ; Last revised: November 30, 2012
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