Do firms put their money where their mouth is? Sociopolitical claims and corporate political activity

Abstract

Firms increasingly take stances on polarizing issues. At the same time, they may engage in political activities that contradict their claims. In this paper, we analyze whether firms’ sociopolitical claims and their political action committee contributions align. We develop a dictionary of claims related to diversity and environmental protection based on combinations of words in corporate communications and link firms’ political contributions to candidate approval ratings provided by political advocacy groups. Our results reveal that firms with more claims contribute a greater share of their donations to politicians that have higher environmental and human rights approval ratings, which is consistent with political alignment. However, we also document that alignment has limitations. Breaking down our analyses into donations to higher- and lower-rated politicians suggests that alignment is driven by more donations to higher-rated politicians but not by fewer donations to lower-rated politicians. Moreover, economic motives in the form of access to government subsidies, the political power of supported politicians, and community pressure for diversity and environmental disclosures reduce political alignment.

Keywords: Corporate values, ESG, campaign contributions, disclosure, political activity

JEL Classification: M14, D72