Long-Term Political Connections and the Returns to Corporate Lobbying

How do firms build their political influence? We shed light on the complementarity between firms electoral campaign contributions and their lobbying activity through three stylized facts. Firms lobby committees where they have contributed to legislators' campaigns; contributions are highly persistent, even after committee reassignments; and firms follow reassigned legislators onto new lobbying topics. We exploit these facts to construct a shift-share instrument for lobbying expenditures in which political connections are defined by persistent campaign contributions and exposure is measured at the legislator-firm level through predetermined contribution shares. We validate the instrument by showing that reassignments have no effect on connected firms that do not lobby, and that future contributions carry no predictive power. Our IV estimates indicate that a 10 percent increase in lobbying raises sales by around 1.1 percent and capital expenditures by 1.4 percent for publicly traded U.S. firms over the period 2000-2016.