Reexamining investor reaction to covert corporate political activity: A replication and extension of Werner (2017)

Ishva Minefee, Mary Hunter McDonnell, Timothy Werner

Research output: Contribution to journalArticlepeer-review


Research Summary: Exploiting a whistleblower's leak of the American Legislative Exchange Council's (ALEC) corporate sponsors, we quasi-replicate and extend Werner's (2017) event study of investor reaction to covert corporate political activity (CPA). Werner found that investors reacted positively to the accidental disclosure of covert ties to the Republican Governors Association. In contrast, when we apply the same research design to the ALEC leak, we find that, on average, firms tied to ALEC experienced negative abnormal returns. In cross-sectional models, we also find that the abnormal returns of ALEC sponsors were more negative for firms that faced shareholder contention around CPA and had liberal-leaning employees, yet less negative for firms engaged in higher levels of institutional corporate social responsibility. The latter two cross-sectional findings extend Werner's results. Managerial Summary: We replicate and extend a study that examined how investors reacted to the disclosure of firms' covert contributions to a conservative-leaning nonprofit organization. In contrast to that paper, we find that investors react negatively toward firms that contributed to ALEC, given its controversial positions on sociopolitical issues such as “stand your ground” gun laws. Investors reacted more negatively if the firm's employees were more liberal leaning or if the firm recently faced a shareholder resolution requesting that it voluntarily disclose all political contributions. However, investors' reactions were less negative if the firm engaged in high levels of corporate social responsibility. An implication for managers is that they should consider the risk associated with their firms' covert ties to political organizations perceived as controversial by the media.

Original languageEnglish (US)
Pages (from-to)1139-1158
Number of pages20
JournalStrategic Management Journal
Issue number6
StatePublished - Jun 2021
Externally publishedYes


  • corporate political activity
  • event study
  • nonmarket strategy
  • replication
  • secrecy

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management


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