Corporate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth?

31 Pages Posted: 24 Sep 2010 Last revised: 5 Dec 2010

John C. Coates, IV

Harvard Law School

Multiple version iconThere are 2 versions of this paper

Date Written: September 21, 2010

Abstract

In Citizens United, the Supreme Court relaxed the ability of corporations to spend money on elections, rejecting a shareholder-protection rationale for restrictions on spending. Little research has focused on the relationship between corporate governance – shareholder rights and power – and corporate political activity. This paper explores that relationship in the S&P 500 to predict the effect of Citizens United on shareholder wealth. The paper finds that in the period 1998-2004 shareholder-friendly governance was consistently and strongly negatively related to observable political activity before and after controlling for established correlates of that activity, even in a firm fixed effects model. Political activity, in turn, is strongly negatively correlated with firm value. These findings – together with the likelihood that unobservable political activity is even more harmful to shareholder interests – imply that laws that replace the shareholder protections removed by Citizens United would be valuable to shareholders.

JEL Classification: D72, G32, G34, G38, K22, K23

Suggested Citation

Coates, IV, John C., Corporate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth? (September 21, 2010). Harvard Law and Economics Discussion Paper No. 684. Available at SSRN: https://ssrn.com/abstract=1680861 or http://dx.doi.org/10.2139/ssrn.1680861

John C. Coates (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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