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 giving
The paper which is set to be published in "Strategic Management Journal" put forward 4 reasons which may explain these findings.
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.