Citizens United, Independent Expenditures, and Agency Costs: Reexamining the Political Economy of State Antitakeover Statutes
Journal of Law, Economics, and Organization (2015) Vol 31 Issue 1: 127-159.
62 Pages Posted: 21 Jul 2013 Last revised: 8 Feb 2015
Date Written: January 28, 2014
We test the agency theory of corporate political activity by examining the association between the legality of independent expenditures and antitakeover lawmaking in the U.S. states. Exploiting changes in state campaign finance law regarding the use of corporate independent expenditures in the pre-Citizens United era, we estimate that a state is more likely to pass antitakeover statutes that entrench management when firms are allowed to make independent expenditures to influence electoral campaigns. We also find that this relationship is conditional on the competitiveness of a state’s electoral environment, suggesting that the threat of independent expenditures may move vulnerable legislators’ votes on less salient issues, such as corporate governance. These findings are robust to competing public interest and political economy explanations for antitakeover law adoption, and they reveal that allowing independent expenditures may create additional agency costs for owners through public policy. Finally, these results strongly challenge the claim that state-level antitakeover laws are exogenous to firms’ activities.
Keywords: Citizens United, Campaign Finance, Agency Theory, Antitakeover Statutes
JEL Classification: D72, G38, K20
Suggested Citation: Suggested Citation