Does Corporate Political Spending Advance Shareholder Interests? Evidence from Clawback Regulation

Abstract

We find evidence that corporate political spending can go against shareholder interests. Specifically, firms whose shareholders would benefit more from the introduction of mandatory clawback provisions donated relatively more to politicians who are likely to weaken the mandate. We measure the extent to which firms would benefit from mandatory clawback provisions using the stock market reaction to the SEC’s announcement of a proposed rule that would mandate clawbacks. Firms with more positive reactions to the announcement exhibit a greater increase in political contributions between the pre- and post-announcement periods to politicians who worked to weaken the clawback rules, relative to firms with less positive reactions.

Keywords: Political spending, Political economy, Executive compensation, Corporate Governance, Finance

JEL Classification: G30, G34, G38, K00, P00