Big money buys friends, which in turn buys influence. This logic
is quite common. A recent study of large American corporations
casts a doubtful light on this belief. Researchers from Rice
University and Long Island University analyzed political gift giving by 943 firms
and revealed that this sort of lobbyism does not pay.
Negative performance following gift giving
Using a sample of S&P1500 firms between 1998 and 2008, their
research showed that corporate political giving is negatively
associated with market performance. Furthermore, corporations that
try to lever political influence by appointing former public
officials to their boards also exhibited inferior market
performance, while accounting performance remained the same.
"The view of corporations meddling in politics to the downfall
of public interests is nothing new. Since our country's founding,
corporate political activity has been seen as promoting its own
interests and agendas over those of the broader public. This study
simply demonstrates that it might not be quite the return on
investment that corporate America or the public at large believes
it to be," co-author Doug Schuler commented.
Highly regulated firms reap returns from gift
The paper which is set to be published in "Strategic Management
Journal" put forward 4 reasons which may explain these
- Managers who support corporate political giving may in general
take overly risky business decisions.
- Corporate political giving may represent poor-quality
- Corporate political giving is difficult for shareholders to
- Personal reasons of senior managers, such as
self-aggrandizement, ideological beliefs and other pressures may
influence corporate political activity.
One qualification is made in the paper, however. Firms active in
highly regulated industries exhibit positive market performance
following political gift giving. "We believe this may reflect the
critical role that government can play in controlling resources and
limiting behaviors through its rulemaking and enforcement
processes, necessitating some level of political activities by the
regulated firms," Schuler argued.