Do Campaign Contributions and Lobbying Expenditures by Firms Create "Political" Capital?

By Hersch, Philip; Netter, Jeffry M. et al. | Atlantic Economic Journal, December 2008 | Go to article overview

Do Campaign Contributions and Lobbying Expenditures by Firms Create "Political" Capital?


Hersch, Philip, Netter, Jeffry M., Pope, Christopher, Atlantic Economic Journal


Introduction

In this paper we examine a simple yet important question: Are firm political contributions and lobbying a way of buying long-term influence? Specifically, our analysis examines the extent to which capital markets view campaign contributions and lobbying expenditures as an asset in terms of increased firm value. Capital market research can provide important insights into firm behavior because it focuses on the impact of decisions made by people risking real resources in investment decisions. We provide evidence on how money influences politics that hopefully complements other research that more directly examines political markets.

We find little evidence of a relation between firms' campaign contributions and lobbying expenditures and their Tobin's q (actually, market/book value of the firms' assets). In this approach, we follow other studies that use q to measure the value of the firm's intangible capital (e.g., the value of advertising, R&D, or environmental performance). Researchers have found a positive and significant relation between intangible assets and q. Analogously, political capital, if it exists, is an intangible asset. However we fail to find any significant statistical relation between q and political spending. This is consistent with the view that capital markets consider campaign contributions and lobbying as an expense and not a capital expenditure with long-run returns.

The result of our work coupled with those of others has important implications for both firm behavior and the political process. For firms, it suggests that political spending has only a short-lived effect, or perhaps should simply be considered a cost of doing business by firms that engage in the activity. Firms may lobby to bring themselves and their interests to the attention of regulators as part of an ongoing process, unlike expenditures on advertising or R&D. But the effects of political contributions and lobbying can depreciate quickly. In the political arena, if campaign contributions and lobbying are not long-lived in the value of the firm, it suggests the importance of dynamics in the political process. This is consistent with the arguments of Ansolabehere et al. (2003) who argue that political contributions are more a consumption good than a way of "buying political influence. They suggest that campaign contributions and lobbying are comparable to firm charitable contributions--contributions to people and ideas the givers want to help, rather than directly buying influence.

Evidence on Political Contributions and Firms

A complete review of the literature related to the impact of political contributions is provided in Ansolabehere et al. (2003), Stratmann (2005), and Brasher and Lowery (2006). In general, studies on the effects of campaign expenditures, especially by firms, yield mixed results. Brasher and Lowery (2006) suggest one reason for the mixed results is that many studies examine the activities of PACs rather than lobbying more generally. In addition, most studies only examine the largest firms (also a limitation of our study). Finally, the existing models may not be very good at modeling firms' characteristics.

Ansolabehere et al. (2003) come to a similar conclusion. Basing their work on an argument originally made by Tullock (1972), they suggest that expenditures by firms to achieve political influence are actually relatively low given the value of public policies. Thus, it is not surprising that researchers have found little relation between contributions and governmental action.

Therefore, the current economics literature leaves the issue of the effects of campaign contributions by firms on the political market and on the firms themselves as unsettled. Here, we address the measurement of the value of political capital through the financial capital markets. Several recent studies also use the capital markets to determine the effects of political contributions on firm value. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Do Campaign Contributions and Lobbying Expenditures by Firms Create "Political" Capital?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.