Abstract

http://ssrn.com/abstract=2295960
 
 

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Citizens United, Independent Expenditures, and Agency Costs: Reexamining the Political Economy of State Antitakeover Statutes


Timothy Werner


University of Texas at Austin - Red McCombs School of Business

John J. Coleman


University of Wisconsin - Madison

January 28, 2014

Forthcoming (2015) at Journal of Law, Economics, and Organization

Abstract:     
We test the agency theory of corporate political activity by examining the association between the legality of independent expenditures and antitakeover lawmaking in the U.S. states. Exploiting changes in state campaign finance law regarding the use of corporate independent expenditures in the pre-Citizens United era, we estimate that a state is more likely to pass antitakeover statutes that entrench management when firms are allowed to make independent expenditures to influence electoral campaigns. We also find that this relationship is conditional on the competitiveness of a state’s electoral environment, suggesting that the threat of independent expenditures may move vulnerable legislators’ votes on less salient issues, such as corporate governance. These findings are robust to competing public interest and political economy explanations for antitakeover law adoption, and they reveal that allowing independent expenditures may create additional agency costs for owners through public policy. Finally, these results strongly challenge the claim that state-level antitakeover laws are exogenous to firms’ activities.

Number of Pages in PDF File: 62

Keywords: Citizens United, Campaign Finance, Agency Theory, Antitakeover Statutes

JEL Classification: D72, G38, K20

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Date posted: July 21, 2013 ; Last revised: May 22, 2014

Suggested Citation

Werner, Timothy and Coleman, John J., Citizens United, Independent Expenditures, and Agency Costs: Reexamining the Political Economy of State Antitakeover Statutes (January 28, 2014). Forthcoming (2015) at Journal of Law, Economics, and Organization. Available at SSRN: http://ssrn.com/abstract=2295960 or http://dx.doi.org/10.2139/ssrn.2295960

Contact Information

Timothy Werner (Contact Author)
University of Texas at Austin - Red McCombs School of Business ( email )
United States
5122326844 (Phone)
HOME PAGE: http://timothywerner.com
John J. Coleman
University of Wisconsin - Madison ( email )
716 Langdon Street
Madison, WI 53706-1481
United States
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