Motivations for Corporate Political Activity

Abstract

Campaign contributions are typically seen as a strategic investment for firms; recent empirical evidence, however, has shown few connections between firms’ political investments and regulatory or performance improvements, prompting researchers to explore agency-based explanations for corporate politics. By studying intra-firm campaign contributions of CEOs and political action committees (PACs), we investigate these two hypotheses surrounding public politics and demonstrate that strategic and agency-based motivations may hold simultaneously. Exploiting transaction-level data, with over 6.8 million observations, we show that (i) when PACs give to specific candidates, executives give to the same candidates, especially those who are strategically important to the firm; and (ii) when executives give to candidates who are not strategically important, PACs give to the same candidates potentially due to agency problems within the firm.

Keywords: Corporate political activity; campaign contributions; CEOs; political action committees (PACs); intra-organizational dynamics; public politics

JEL Classification: D72