Investor Reaction to Covert Corporate Political Activity
Forthcoming, Strategic Management Journal
41 Pages Posted: 28 Jul 2017 Last revised: 3 Aug 2017
Date Written: June 8, 2017
Citizens United vs. Federal Election Commission and subsequent developments created a covert channel for firms to allocate resources from corporate treasuries to political activity. Through the use of a financial market event study of an accidental disclosure of firms’ contributions to a Republican non-profit organization, I examine investors’ reactions to covert investment in independent political expenditures. I find that, on average, contributing firms experienced positive abnormal returns around the disclosure event and that these abnormal returns were more positive for firms in heavily regulated industries, as well as those previously making campaign contributions to candidates. However, firms that recently faced a shareholder resolution on political spending disclosure experienced negative abnormal returns, suggesting that the controversial nature of covert activity moderated investors’ reactions.
Keywords: corporate political activity, nonmarket strategy, Citizens United, regulation, disclosure
JEL Classification: D72, K20
Suggested Citation: Suggested Citation