Personal Financial Incentives and Corporate Campaign Contributions

Abstract

Despite the well-documented benefits of political participation, few firms engage in politics. We argue that low levels of corporate political participation can be rationalized by financial incentives of employees and shareholders who are the ultimate source of corporate contributions. Since even large firm-level benefits are trivial for individuals with small equity-stakes, few people have sufficient incentives to contribute. This logic explains why corporate political contributions are relatively small and why firms seek alternative channels of political influence. Empirically, we document that corporate PACs are financially constrained and that financial incentives of individual contributors are a strong determinant of campaign contributions.

Keywords: PACs, Political Contributions, Corporate Political Influence

JEL Classification: D72, G30, G38, P48