Abstract

http://ssrn.com/abstract=972670
 
 

References (31)



 
 

Citations (17)



 


 



Corporate Political Donations: Investment or Agency?


Rajesh K. Aggarwal


University of Minnesota - Twin Cities - Carlson School of Management

Felix Meschke


University of Kansas - Finance Area

Tracy Yue Wang


University of Minnesota - Twin Cities - Carlson School of Management

April 5, 2012

2008 WFA Meeting Paper
AFA 2012 Chicago Meetings Paper

Abstract:     
We examine corporate donations to political candidates for federal offices in the United States from 1991 to 2004. Firms that donate have operating characteristics consistent with the existence of a free cash flow problem, and donations are negatively correlated with returns. A $10,000 increase in donations is associated with a reduction in annual excess returns of 7.4 basis points. Worse corporate governance is associated with larger donations. Even after controlling for corporate governance, donations are associated with lower returns. Donating firms engage in more acquisitions and their acquisitions have significantly lower cumulative abnormal announcement returns than non-donating firms. We find virtually no support for the hypothesis that donations represent an investment in political capital. Instead, political donations are symptomatic of agency problems within firms. Our results are particularly useful in light of the Citizens United ruling, which is likely to greatly increase the use of corporate funds for political donations.

Number of Pages in PDF File: 43

Keywords: Corporate Governance, Political Donations, Investment, Agency

JEL Classification: G3, G34

working papers series


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Date posted: March 17, 2008 ; Last revised: April 6, 2012

Suggested Citation

Aggarwal, Rajesh K. and Meschke, Felix and Wang, Tracy Yue, Corporate Political Donations: Investment or Agency? (April 5, 2012). 2008 WFA Meeting Paper; AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=972670 or http://dx.doi.org/10.2139/ssrn.972670

Contact Information

Rajesh K. Aggarwal
University of Minnesota - Twin Cities - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
Felix Meschke (Contact Author)
University of Kansas - Finance Area ( email )
1300 Sunnyside Avenue
Lawrence, KS
United States
(347) 433-5495 (Phone)
HOME PAGE: http://www.business.ku.edu/faculty/meschke-felix/
Tracy Yue Wang
University of Minnesota - Twin Cities - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
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