Political Information Flow and Management Guidance

Abstract

We examine whether politically connected firms play a role in disseminating political
information via their management guidance. Using campaign financing activity or the presence
of a government affairs office to proxy for firms’ access to political information, we find that
politically connected firms are more likely to issue management guidance, and their guidance is
more likely to discuss government policies. Further, these relations are attenuated for firms
facing high proprietary costs of disclosure. To provide evidence on the source of the political
information disclosed through guidance, we examine the timing of when guidance is issued. We
find that politically connected firms are more likely to issue guidance and change their
government policy-related disclosures prior to the public revelation of government policy
decisions. Collectively, these findings suggest that the privileged information firms obtain
through their political connections is shared with investors through voluntary disclosures.

Keywords: Political connections; Information flow; Management forecasts; Corporate disclosure

JEL Classification: D82, D83, G38, G14, M41