Firm Value and Unregulated Political Donations ---Evidence from an Exogenous Regulation Shock to Soft Money Contributions

39 Pages Posted: 15 Jan 2012 Last revised: 9 Feb 2020

See all articles by Shunlan Fang

Shunlan Fang

Kent State University

Saumya Prabhat

Indian School of Business (ISB), Hyderabad

Date Written: January 15, 2012

Abstract

The benefits and costs associated with corporate political spending are always in the interests of the general public and investors. Soft money is a special type of political donations, which do not have regulatory limits and are highly subject to agency conflicts. During the decade before it was banned, soft money donation was used to circumvent the restrictions on the fundraising of federal candidates and had increased by 420%. Despite of the controversy, we find that investors still view the benefits of soft money contributions outweigh the costs. Utilizing the surprising outcome of McConnell v. FEC Supreme Court decision as an exogenous and adverse shock to a firm’s ability to contribute soft money, we estimate that the equity market expects about $49 to $59 in return for every dollar of soft money capital.

Keywords: Soft money, Political investment, Agency conflicts, McConnell v. FEC ruling, Event study

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

Suggested Citation

Fang, Shunlan and Prabhat, Saumya, Firm Value and Unregulated Political Donations ---Evidence from an Exogenous Regulation Shock to Soft Money Contributions (January 15, 2012). 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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