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Investor Reaction to Covert Corporate Political Activity

Forthcoming, Strategic Management Journal

41 Pages Posted: 28 Jul 2017 Last revised: 3 Aug 2017

Timothy Werner

University of Texas at Austin - Red McCombs School of Business

Date Written: June 8, 2017

Abstract

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

Werner, Timothy, Investor Reaction to Covert Corporate Political Activity (June 8, 2017). Forthcoming, Strategic Management Journal. Available at SSRN: https://ssrn.com/abstract=3008652

Timothy Werner (Contact Author)

University of Texas at Austin - Red McCombs School of Business ( email )

United States
5122326844 (Phone)

HOME PAGE: http://timothywerner.com

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