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In search of El Dorado: The elusive financial returns on corporate political investments

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  • Michael Hadani
  • Douglas A. Schuler

Abstract

Although many believe that companies' political activities improve their bottom line, empirical studies have not consistently borne this out. We investigate the relationship between corporate political activity (CPA) and financial returns on a set of 943 S&P 1500 firms between 1998 to 2008. We find that firms' political investments are negatively associated with market performance and cumulative political investments worsen both market and accounting performance. Firms placing former public officials on their boards experienced inferior market performance and similar accounting performance than firms without such board members. We find, however, that CPA is positively associated with market performance for firms in regulated industries. Our results challenge the profit‐maximizing assumptions underlying CPA research and focus on agency theory to better understand CPA. Copyright © 2012 John Wiley & Sons, Ltd.

Suggested Citation

  • Michael Hadani & Douglas A. Schuler, 2013. "In search of El Dorado: The elusive financial returns on corporate political investments," Strategic Management Journal, Wiley Blackwell, vol. 34(2), pages 165-181, February.
    • Handle: RePEc:bla:stratm:v:34:y:2013:i:2:p:165-181
    DOI: 10.1002/smj.2006
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    Citations

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    Cited by:

    1. Kshitij Awasthi & Sai Yayavaram & Rejie George & Trilochan Sastry, 2025. "Political connections and profit persistence in India," Asia Pacific Journal of Management, Springer, vol. 42(2), pages 919-967, June.
    2. Mark R. DesJardine & Wei Shi & Timothy Werner, 2025. "Shareholder Activism and the Deterrence Effect of Democratic Politician Shareholders," Organization Science, INFORMS, vol. 36(2), pages 993-1019, March.
    3. Amin, Abu & Hossain, Md Miran & Lee, Narae & Saadi, Samir, 2025. "Corporate political activities and firms' carbon emissions," Journal of Corporate Finance, Elsevier, vol. 95(C).
    4. Luis Ballesteros & Catherine Magelssen, 2022. "Institutional Disruptions and the Philanthropy of Multinational Firms," Organization Science, INFORMS, vol. 33(4), pages 1501-1522, July.
    5. Rhys Andrews & Kevin Fahey, 2026. "Business executives’ service on UK government boards and firm performance does “insiderness” matter?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 30(1), pages 337-359, March.
    6. Mirzokhidjon Abdurakhmonov & Dinesh Hasija & Jason W. Ridge & Aaron D. Hill, 2023. "Maintaining or Altering the Status Quo in the Nonmarket Arena: Theory and Evidence from Government Contract Disputes," Organization Science, INFORMS, vol. 34(3), pages 1004-1026, May.
    7. Lu Jintao & Zuxin Song & Francesco Mercuri & Malin Song & Nicola Cucari, 2025. "Shaping the Path to Sustainable Responsibility: Political Connection and Corporate Social Responsibility Implementation," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(6), pages 8380-8397, December.
    8. Min-Seok Pang & Russell J. Funk & Daniel Hirschman, 2024. "We Fly Congress: Market Actions as Corporate Political Activity in the U.S. Airline Industry," Organization Science, INFORMS, vol. 35(4), pages 1251-1270, July.
    9. Londoño van Rutten, Rodrigo, 2025. "Corporate lobbying and US federal grants: Information in exchange for compensation," Journal of Financial Stability, Elsevier, vol. 81(C).
    10. Ivana V. Katic & Jerry W. Kim, 2024. "Caught in the Revolving Door: Firm-Government Employee Mobility as a Fleeting Regulatory Advantage," Organization Science, INFORMS, vol. 35(1), pages 281-306, January.

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