PAC-ing a Punch: Economic Effects of Corporate Political Advocacy

Abstract

Corporations are increasingly engaging in political advocacy. In this paper, we examine the motivations and financial consequences of corporate political statements using the announcements of a pause, and subsequent resumption, of corporate donations to political action committees (PAC) following the January 2021 US Capitol riots. Firms operating in a politically polarized environment and with Democrat-leaning employees were more likely to make these announcements, irrespective of firm-level political risks. The average announcement returns are negative for firms exposed to high polarization and political risks but positive for firms exposed to high polarization and low political risks. Both these groups of firms gain in quarterly sales revenues and profitability. However, firms facing high polarization and political risks are more likely to resume PAC donations within a year of the Capitol riots. These results indicate that corporate political advocacy is a symbolic political engagement to benefit from a politically polarized marketplace.

Keywords: Political Strategy, Firm Value, Consumer Polarization

JEL Classification: D21, D82, G32, L21