Corporate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth?
John C. Coates, IV
Harvard Law School
September 21, 2010
Harvard Law and Economics Discussion Paper No. 684
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.
Number of Pages in PDF File: 31
JEL Classification: D72, G32, G34, G38, K22, K23
Date posted: September 24, 2010 ; Last revised: December 5, 2010