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The Benefits of a Relational Approach to Corporate Political Activity: Evidence from Political Contributions to Tax Policymakers

Brown, J. L., Drake, K., & Wellman, L. (2014). The benefits of a relational approach to corporate political activity: Evidence from political contributions to tax policymakers. The Journal of the American Taxation Association, 37(1), 69-102.

59 Pages Posted: 1 Feb 2013 Last revised: 5 Nov 2015

Jennifer L. Brown

Arizona State University (ASU) - W.P. Carey School of Business

Katharine D. Drake

University of Arizona - Department of Accounting

Laura Wellman

University of Utah - David Eccles School of Business

Date Written: July 22, 2014

Abstract

Empirical evidence linking campaign financing activity to future firm benefits is mixed. However, theory suggests that an important aspect of a successful political strategy is a multi-period investment in cultivating relationships with key policymakers (Snyder 1992). We examine a specific setting and investigate whether firms that invest in relationships with tax policymakers via campaign contributions accrue greater future tax benefits. We find that firms that pursue a more relational approach to corporate political activity have lower future cash and GAAP ETRs and less volatile future cash ETRs. Further, we provide evidence of an incremental effect of tax-specific lobbying for firms that develop stronger relationships with tax policymakers via PAC support. Thus, our study links tax-specific PAC support to tax-specific outcomes, providing an economic link for the observed contribution-return relation documented in Cooper, Gulen, and Ovtchinnikov (2010).

Suggested Citation

Brown, Jennifer L. and Drake, Katharine D. and Wellman, Laura, The Benefits of a Relational Approach to Corporate Political Activity: Evidence from Political Contributions to Tax Policymakers (July 22, 2014). Brown, J. L., Drake, K., & Wellman, L. (2014). The benefits of a relational approach to corporate political activity: Evidence from political contributions to tax policymakers. The Journal of the American Taxation Association, 37(1), 69-102.. Available at SSRN: https://ssrn.com/abstract=2209373 or http://dx.doi.org/10.2139/ssrn.2209373

Jennifer L. Brown

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States
(480)965-6618 (Phone)
(480) 965-8392 (Fax)

Katharine D. Drake (Contact Author)

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States

Laura Wellman

University of Utah - David Eccles School of Business ( email )

1645 Campus Center Drive
Salt Lake City, UT 84112
United States

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