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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.

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  • 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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