The Corporate Value of (Corrupt) Lobbying

62 Pages Posted: 31 May 2014 Last revised: 20 Nov 2014

Alexander Borisov

University of Cincinnati

Eitan Goldman

Indiana University - Kelley School of Business - Department of Finance

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Date Written: September 20, 2014

Abstract

Using an event study, we examine whether the stock market considers corporate lobbying to be a value-enhancing activity. On January 3, 2006, lobbyist Jack Abramoff pleaded guilty to bribing politicians, which generated intense scrutiny of lobbyists, limiting their political influence. Using this event as a negative exogenous shock to the ability of firms to lobby, we show that a firm that spends $100,000 more cumulatively on lobbying in the three years prior to 2006, experiences a loss of about $1.2 million in value around the guilty plea. We also find suggestive evidence that part of the value from lobbying may arise from potentially unethical practices.

Keywords: Lobbying, shareholder value, corporate social responsibility, corruption, political connections

JEL Classification: G14, G18, G38, D72

Suggested Citation

Borisov, Alexander and Goldman, Eitan and Gupta, Nandini, The Corporate Value of (Corrupt) Lobbying (September 20, 2014). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 423/2014. Available at SSRN: https://ssrn.com/abstract=2443104 or http://dx.doi.org/10.2139/ssrn.2443104

Alexander Borisov

University of Cincinnati ( email )

Cincinnati, OH 45221-0389
United States

Eitan Goldman (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-856-0749 (Phone)

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

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