Do Corporate Political Contributions Increase Equity Value? Evidence from a Supreme Court Decision and Related Events

62 Pages Posted: 15 Jan 2012 Last revised: 20 Apr 2014

See all articles by Shunlan Fang

Shunlan Fang

Kent State University

Saumya Prabhat

Indian School of Business (ISB), Hyderabad

Date Written: December 29, 2013

Abstract

Although various papers have examined the relation between political contributions and equity value, there is no consensus on whether the contributions increase equity value of the contributing firms. We provide causal evidence by examining announcement returns to the McConnell v. FEC Supreme Court decision of 2003 and amendments to the Bipartisan Campaign Reform Act (BCRA) of 2002, which eventually led to the ban on “soft money” contributions. We find that the decision decreases equity value by 0.26% to 1.06% in a day for firms that were contributing soft money prior to the ban. Daily and intraday return analyses of the events suggest that the market expects every dollar of soft money contributions to generate about $40 to $50 in return for the contributing firms.

Keywords: firm value, political contributions, event study, political economy, corporate governance, soft money, BCRA, McConnell v. FEC, Citizens United v. FEC

JEL Classification: G30, G14, G18, D70, D72

Suggested Citation

Fang, Shunlan and Prabhat, Saumya, Do Corporate Political Contributions Increase Equity Value? Evidence from a Supreme Court Decision and Related Events (December 29, 2013). Available at SSRN: https://ssrn.com/abstract=1780404 or http://dx.doi.org/10.2139/ssrn.1780404

Shunlan Fang

Kent State University ( email )

Kent, OH 44242
United States

Saumya Prabhat (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

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