CEO Political Engagement and Personal SEC Prosecution

Abstract

We find that CEOs engage in the political system through personal contributions when they face an increased risk of SEC enforcement. CEOs of firms with regulatory violations almost double their personal campaign contributions during violation years, and these increased contributions are directed towards candidates rather than parties, consistent with influence acquisition. We provide evidence on causality using SOX, which increased expected personal enforcement costs for CEOs. Lastly, we document that the rate of increase in CEO contributions is negatively associated with the likelihood that the CEO is personally named in SEC enforcement proceedings, consistent with transactional regulatory capture.

Keywords: personal political campaign contributions, influence acquisition, SEC enforcement, financial misconduct, chief executive officer, political action committee.

JEL Classification: G380, K220, M48