Do Local Constraints on Corporate Political Activities Really Bite? Evidence from Local Adoptions of the American Anti-Corruption Act

75 Pages Posted: 5 Jun 2021

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

City University of Hong Kong

Albert Mensah

HEC Paris - Accounting and Management Control Department

Date Written: October 12, 2019

Abstract

We examine the consequences of local laws modeled on the American Anti-Corruption Act (“AACA”), which aims to constrain corporate political activities. Consistent with these laws significantly increasing the costs of forging local political connections, we find a reduction in the likelihood that: (i) local incumbent politicians are re-elected; and (ii) firms receive local government contracts. We also find a negative capital market reaction to the AACA — indicating that shareholders punish firms for losing valuable connections, and a decline in opportunistic reporting, suboptimal investments and corporate risk-taking. Our evidence feeds into the calls to legislate the AACA at the state (federal) level.

Keywords: American Anti-Corruption Act; Political Economy; Corporate Political Activities; Capital Market; Financial Reporting; Real Decisions

JEL Classification: D22; D72; G38; K42; M40; P16

Suggested Citation

Kim, Jeong-Bon and Mensah, Albert, Do Local Constraints on Corporate Political Activities Really Bite? Evidence from Local Adoptions of the American Anti-Corruption Act (October 12, 2019). Available at SSRN: https://ssrn.com/abstract=3855309 or http://dx.doi.org/10.2139/ssrn.3855309

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Albert Mensah (Contact Author)

HEC Paris - Accounting and Management Control Department

Jouy-en-Josas
France

HOME PAGE: http://https://www.hec.edu/en/faculty-research/faculty-directory/faculty-member/mensah-albert

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