Involuntarily green? Corporate donations to politicians and their votes on environmental legislation

Abstract

Involuntarily green firms—those whose environmental score improves after mandatory environmental regulations pass—try to lessen their compliance burden by donating to politicians who frequently vote against the advice by the League of Conservation Voters (LCV). To achieve “regulatory capture” through their political donations, involuntarily green firms target members of congress staffing committees overseeing the EPA or legislators with influence over local environmental agencies. When their supported politicians narrowly win congressional races, involuntarily green firms experience higher market-adjusted abnormal stock returns. These firms also exhibit better stock and accounting returns as well as equity analysts’ upgrades when LCV-opposed bills pass. 

Keywords: Political Donations, Environmental Cost-Cutting, Environmental Laws, Regulatory Capture