The Value of Corporate Political Donations: Evidence from the Capitol Riot

Abstract

Corporate political action committees donate about $300 million to federal political candidates each election cycle, but research offers mixed evidence on the value of these contributions. We estimate the value of a firm's campaign contributions by studying the decision of 159 S&P 500 companies to stop donations following a riot in the U.S. Capitol building. Average cumulative abnormal returns over the two days following firms' announcements to halt donations were −0.6 percent. There is no significant relationship between the magnitude of abnormal returns and (a) the amount of political contributions, (b) the intensity of regulation in a firm's industry, (c) the firm's lobbying expenditures, or (d) the firm's score on governance and political accountability indexes. Analysis of campaign donations following the riot shows that firms mostly honored their pledge to stop donations, at least for the first quarter of 2021. Together, the results suggest campaign donations by corporate political action committees have small effects on firm value.

Keywords: political action committee, donations, nonmarket strategy, campaign finance

JEL Classification: D72, K29, G38