Lobbying Against Enforcement

Abstract

How pervasive is the strategic use of corporate political spending to fight regulatory enforcement? Previous scholarship suggests that such practices may be rare, with periodic scandals being outliers rather than reflections of systematic conduct. This Article provides a corrective to this conventional wisdom. Contrary to the view that these influence-seeking activities are unusual, I offer new empirical evidence that companies regularly use political spending to defend against enforcement.

Proceeding on the theory that companies seeking political influence over enforcement will ramp up their political spending when under investigation, I assemble extensive data on nearly two decades of corporate lobbying expenditures, political action committee contributions, and investigations by the U.S. Securities and Exchange Commission. I begin my analysis by documenting the basic descriptive fact that political spending is relatively common and intense for companies that have run into regulatory trouble, with investigated companies engaging in lobbying and campaign contributions at much higher rates and in much higher amounts than other companies. Shifting to a causal analysis, I also find evidence that companies change their political spending in direct response to investigations, both by increasing their lobbying expenditures and by reallocating campaign contributions toward more strategically valuable candidates, increasingly favoring incumbents, party leaders, oversight committee leaders, and majority members. This evidence of a causal relationship suggests deliberate efforts by companies to influence enforcement, as opposed to mere happenstance. Lastly, I find evidence that CEOs engage in similar strategic behavior.

Supposing that "lobbying against enforcement" is commonplace, should we be concerned? Although such practices could in theory provide valuable information to lawmakers, I propose reasons for skepticism about this informational rationale based on the information already elicited by the litigation process and the one-sided nature of the lobbying exchange. I conclude by discussing potential policy interventions for those concerned by the practice.

Keywords: corporate political spending, money in politics, agency enforcement, law and politics, lobbying, campaign contributions, securities regulation, securities enforcement

JEL Classification: K00, K16, K2, K22, K20, K23, K42, D72, D73, P00