Corporate Politics, Governance, and Value Before and After Citizens United

ABSTRACT: This paper explores corporate politics, governance and value in the S&P 500 before and afterCitizens United.

In regulated and government-dependent industries (e.g., banking, telecommunications), political activity is nearly universal, and uncorrelated with measures of shareholder power, managerial agency costs, or value. But 11% of CEOs in 2000 who retired by 2011 obtained political positions after retiring, and in a majority of industries (e.g., apparel, retail), political activity is common but varied, and correlates negatively with measures of shareholder power(concentration, rights), positively with signs of managerial agency costs (corporate jet use by CEOs), and negatively with shareholder value (industry-relative Tobin’s q). The negative politics-value relationship is stronger in firms making large capital expenditures, suggesting that politics may lead firms to pursue value-destroying projects, and the relationship is also stronger in regressions with firm and time fixed effects, which rule out many potential omitted variables. After the exogenous shock of Citizens United, corporatelobbying and PAC activity jumped, in both frequency and amount, and firms that were politically active in 2008 had lower value in 2010 than other firms, consistent with politics at least partly causing and not merely correlating with lower value. Overall, the results are inconsistent with politics generally serving shareholder interests, and support proposals to require disclosure of political activity to shareholders.

First draft: December 16, 2011

John C. Coates IV
John F. Cogan, Jr. Professor of Law and Economics
Harvard Law School

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