Lobbying in Finance Industry: Evidence From US Banking System

Abstract

We examine corporate lobbying as a means of influencing federal securities class action litigation outcomes and increasing firm value for financial firms. First, we show that political lobbying lowers litigation likelihood for financial institutions. Secondly, lobbying firms experience a higher likelihood of case dismissal, and the average settlement amount is significantly lower for lobbying institutions. In addition, lobbying firms experience significantly higher cumulative abnormal returns (CARs) surrounding litigation announcements, compared to non-lobbying firms. Finally, we show that lobbying firms have higher long-run buy-and-hold abnormal stock returns (BHARs) following lobbying activities. Our results link financial institution lobbying activity with improved legal outcomes and increases in firm value, implying that lobbying may protect financial institutions from reduced firm value through the building of political capital and improved litigation outcomes.

Keywords: Corporate Lobbying, Corporate Fraud, Corporate Governance, Financial Institutions

JEL Classification: G30, G32, G38, K41