Abstract

http://ssrn.com/abstract=2023019
 
 

Citations (3)



 


 



The Value of (Corrupt) Lobbying


Alexander Borisov


University of Cincinnati

Eitan Goldman


Indiana University - Kelley School of Business - Department of Finance

Nandini Gupta


Indiana University - Kelley School of Business - Department of Finance

March 15, 2012


Abstract:     
Does corporate lobbying simply add value by allowing firms to communicate expert information to policy makers, or does it also add value by facilitating potentially illegal quid pro quo arrangements, where lawmakers receive private benefits in exchange for favorable policy decisions? Using the corruption scandal involving the top Washington D.C. lobbyist Jack Abramoff as an exogenous negative shock to the ability of firms to lobby, we first examine whether lobbying affects the market value of firms, and second, whether some of this added market value can be attributed to illegal lobbying practices. The results suggest that firms that lobby more experience a significant decrease in market value following the guilty plea by Mr. Abramoff to bribery and corruption. A firm that spent $100,000 more on lobbying prior to the event year experiences an average decrease of $1.4 million in value in a 3-day event window around the guilty plea, suggesting that lobbying activity increases shareholder value. To examine whether corrupt lobbying practices add value, we use corporate social responsibility rankings to capture a firm’s propensity to engage in corrupt practices, and find that lobbying firms with a poor reputation experience a greater decrease in value following the scandal. We also find that legislation aimed at curbing corrupt lobbying practices significantly reduces firm value. A firm that spent $100,000 more on lobbying prior to the event year, experiences an average decrease of $0.84 million in value in a 3-day event window around the passage of the anti-corruption law. Finally, we examine whether opaque firms, which may benefit more from the informational role of lobbying, benefit more from lobbying, and do not find that these firms benefit more. Our results indicate that lobbying creates shareholder value, and that some of this value may be attributed to corruption.

Number of Pages in PDF File: 46

Keywords: corruption, event study, lobbying, political connections, shareholder value

JEL Classification: G14, G18, G38, D72

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Date posted: March 16, 2012  

Suggested Citation

Borisov, Alexander and Goldman, Eitan and Gupta, Nandini, The Value of (Corrupt) Lobbying (March 15, 2012). Available at SSRN: http://ssrn.com/abstract=2023019 or http://dx.doi.org/10.2139/ssrn.2023019

Contact Information

Alexander Borisov
University of Cincinnati ( email )
Cincinnati, OH 45221-0389
United States
Eitan Goldman
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-856-0749 (Phone)

Nandini Gupta (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

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