Influencing Profits

The Differential Impact of Lobbying on Corporate Stock Returns

Michelle Hutchens, Sonja O. Rego, Amy Sheneman

Research output: Working paper

Abstract

Prior research provides mixed evidence on whether corporate lobbying activities increase or decrease shareholder value. In this study we use detailed data on corporate lobbying expenditures to investigate which factors influence the returns to corporate lobbying activities. Specifically, we examine whether the returns vary by lobbying issue (e.g., tax-, defense-, or healthcare-related), by the severity of agency problems, by the lobbying approach employed, and by the potential benefits to be gained lobbying. Our results suggest that although the association between abnormal stock returns and total lobbying expenditures is generally positive and significant, the returns to lobbying vary substantially depending on the issue being lobbied. While investors expect lobbying on tax-, defense-, trade-, and federal budget-related issues to generate significant economic benefits for firms, they expect the returns to environment-related lobbying to actually decrease shareholder value. We also provide evidence that the returns to lobbying are more positive for firms with low free cash flows, for firms that adopt a relational approach to lobbying, and for firms with the largest potential benefits to be gained from lobbying. Overall, our research suggests that corporate lobbying activities represent strategic political investments that generate future economic benefits, not agency problems as asserted by some prior studies.
Original languageEnglish (US)
Number of pages43
DOIs
StatePublished - May 14 2016

Publication series

NameKelley School of Business Research Paper
No.16-41

Fingerprint

Profit
Lobbying
Stock returns
Expenditure
Tax
Economic benefits
Shareholder value
Agency problems
Severity
Influence factors
Federal budget
Investors
Healthcare
Free cash flow

Keywords

  • Corporate Lobbying
  • Shareholder Value
  • Stock Returns
  • Relational Approach
  • Tax

Cite this

Hutchens, M., Rego, S. O., & Sheneman, A. (2016). Influencing Profits: The Differential Impact of Lobbying on Corporate Stock Returns. (Kelley School of Business Research Paper; No. 16-41). https://doi.org/10.2139/ssrn.2779697

Influencing Profits : The Differential Impact of Lobbying on Corporate Stock Returns. / Hutchens, Michelle; Rego, Sonja O.; Sheneman, Amy.

2016. (Kelley School of Business Research Paper; No. 16-41).

Research output: Working paper

Hutchens M, Rego SO, Sheneman A. Influencing Profits: The Differential Impact of Lobbying on Corporate Stock Returns. 2016 May 14. (Kelley School of Business Research Paper; 16-41). https://doi.org/10.2139/ssrn.2779697
Hutchens, Michelle ; Rego, Sonja O. ; Sheneman, Amy. / Influencing Profits : The Differential Impact of Lobbying on Corporate Stock Returns. 2016. (Kelley School of Business Research Paper; 16-41).
@techreport{121ea0aa9e0448108df2d1f5aedc8bb0,
title = "Influencing Profits: The Differential Impact of Lobbying on Corporate Stock Returns",
abstract = "Prior research provides mixed evidence on whether corporate lobbying activities increase or decrease shareholder value. In this study we use detailed data on corporate lobbying expenditures to investigate which factors influence the returns to corporate lobbying activities. Specifically, we examine whether the returns vary by lobbying issue (e.g., tax-, defense-, or healthcare-related), by the severity of agency problems, by the lobbying approach employed, and by the potential benefits to be gained lobbying. Our results suggest that although the association between abnormal stock returns and total lobbying expenditures is generally positive and significant, the returns to lobbying vary substantially depending on the issue being lobbied. While investors expect lobbying on tax-, defense-, trade-, and federal budget-related issues to generate significant economic benefits for firms, they expect the returns to environment-related lobbying to actually decrease shareholder value. We also provide evidence that the returns to lobbying are more positive for firms with low free cash flows, for firms that adopt a relational approach to lobbying, and for firms with the largest potential benefits to be gained from lobbying. Overall, our research suggests that corporate lobbying activities represent strategic political investments that generate future economic benefits, not agency problems as asserted by some prior studies.",
keywords = "Corporate Lobbying, Shareholder Value, Stock Returns, Relational Approach, Tax",
author = "Michelle Hutchens and Rego, {Sonja O.} and Amy Sheneman",
year = "2016",
month = "5",
day = "14",
doi = "10.2139/ssrn.2779697",
language = "English (US)",
series = "Kelley School of Business Research Paper",
number = "16-41",
type = "WorkingPaper",

}

TY - UNPB

T1 - Influencing Profits

T2 - The Differential Impact of Lobbying on Corporate Stock Returns

AU - Hutchens, Michelle

AU - Rego, Sonja O.

AU - Sheneman, Amy

PY - 2016/5/14

Y1 - 2016/5/14

N2 - Prior research provides mixed evidence on whether corporate lobbying activities increase or decrease shareholder value. In this study we use detailed data on corporate lobbying expenditures to investigate which factors influence the returns to corporate lobbying activities. Specifically, we examine whether the returns vary by lobbying issue (e.g., tax-, defense-, or healthcare-related), by the severity of agency problems, by the lobbying approach employed, and by the potential benefits to be gained lobbying. Our results suggest that although the association between abnormal stock returns and total lobbying expenditures is generally positive and significant, the returns to lobbying vary substantially depending on the issue being lobbied. While investors expect lobbying on tax-, defense-, trade-, and federal budget-related issues to generate significant economic benefits for firms, they expect the returns to environment-related lobbying to actually decrease shareholder value. We also provide evidence that the returns to lobbying are more positive for firms with low free cash flows, for firms that adopt a relational approach to lobbying, and for firms with the largest potential benefits to be gained from lobbying. Overall, our research suggests that corporate lobbying activities represent strategic political investments that generate future economic benefits, not agency problems as asserted by some prior studies.

AB - Prior research provides mixed evidence on whether corporate lobbying activities increase or decrease shareholder value. In this study we use detailed data on corporate lobbying expenditures to investigate which factors influence the returns to corporate lobbying activities. Specifically, we examine whether the returns vary by lobbying issue (e.g., tax-, defense-, or healthcare-related), by the severity of agency problems, by the lobbying approach employed, and by the potential benefits to be gained lobbying. Our results suggest that although the association between abnormal stock returns and total lobbying expenditures is generally positive and significant, the returns to lobbying vary substantially depending on the issue being lobbied. While investors expect lobbying on tax-, defense-, trade-, and federal budget-related issues to generate significant economic benefits for firms, they expect the returns to environment-related lobbying to actually decrease shareholder value. We also provide evidence that the returns to lobbying are more positive for firms with low free cash flows, for firms that adopt a relational approach to lobbying, and for firms with the largest potential benefits to be gained from lobbying. Overall, our research suggests that corporate lobbying activities represent strategic political investments that generate future economic benefits, not agency problems as asserted by some prior studies.

KW - Corporate Lobbying

KW - Shareholder Value

KW - Stock Returns

KW - Relational Approach

KW - Tax

U2 - 10.2139/ssrn.2779697

DO - 10.2139/ssrn.2779697

M3 - Working paper

T3 - Kelley School of Business Research Paper

BT - Influencing Profits

ER -