Why Do Firms Engage in Politics? The Role of External Oversight

46 Pages Posted: 28 May 2019

See all articles by Edward Podolski

Edward Podolski

Deakin University; Financial Research Network (FIRN)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Date Written: May 1, 2019

Abstract

We examine the association between external managerial oversight and corporate political donations. Employing a propensity score matching methodology with firm fixed effects, we find that oversight by institutional investors as well as equity analysts is positively associated with political donations. These results suggest that corporate political donations benefit shareholders and are a form of strategic investment. In additional analysis, we find that political contributions benefit the donating firm’s stock price performance when the firm operates in a highly regulated environment, and that donating firms receive more federal government support. Our results suggest that corporate political activism is a value enhancing endeavor.

Keywords: Political donations; Institutional ownership; Analyst following

JEL Classification: D72; G18; G32; G34

Suggested Citation

Podolski, Edward and Veeraraghavan, Madhu, Why Do Firms Engage in Politics? The Role of External Oversight (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3381265 or http://dx.doi.org/10.2139/ssrn.3381265

Edward Podolski (Contact Author)

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

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