Influencing Profits: The Differential Impact of Lobbying on Corporate Stock Returns
43 Pages Posted: 14 May 2016 Last revised: 26 Jun 2016
Date Written: April 29, 2016
Prior research provides mixed evidence on whether corporate lobbying activities increase or decrease shareholder value. In this study we use detailed data on corporate lobbying expenditures to investigate which factors influence the returns to corporate lobbying activities. Specifically, we examine whether the returns vary by lobbying issue (e.g., tax-, defense-, or healthcare-related), by the severity of agency problems, by the lobbying approach employed, and by the potential benefits to be gained lobbying. Our results suggest that although the association between abnormal stock returns and total lobbying expenditures is generally positive and significant, the returns to lobbying vary substantially depending on the issue being lobbied. While investors expect lobbying on tax-, defense-, trade-, and federal budget-related issues to generate significant economic benefits for firms, they expect the returns to environment-related lobbying to actually decrease shareholder value. We also provide evidence that the returns to lobbying are more positive for firms with low free cash flows, for firms that adopt a relational approach to lobbying, and for firms with the largest potential benefits to be gained from lobbying. Overall, our research suggests that corporate lobbying activities represent strategic political investments that generate future economic benefits, not agency problems as asserted by some prior studies.
Keywords: Corporate Lobbying, Shareholder Value, Stock Returns, Relational Approach, Tax
JEL Classification: D21, G14, G39, H25, H32, K20, M21, M49
Suggested Citation: Suggested Citation