The Benefits of a Relational Approach to Corporate Political Activity: Evidence from Political Contributions to Tax Policymakers
Jennifer L. Brown
Arizona State University (ASU) - W.P. Carey School of Business
Katharine D. Drake
University of Arizona - Department of Accounting
University of Utah - David Eccles School of Business
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.
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).
Number of Pages in PDF File: 59
Date posted: February 1, 2013 ; Last revised: November 5, 2015