Do firms put their money where their mouth is? Sociopolitical claims and corporate political activity

Susanne Preuss*, Malte Max

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Firms increasingly respond to stakeholder demands by making public claims about their stances on polarizing issues, but at the same time their political activities may contradict their claims. We analyze the extent to which firms' sociopolitical claims and their political action committee contributions align. We develop a dictionary of claims related to diversity and environmental protection based on word combinations in firm communications and link firms' political contributions to candidate approval ratings provided by third-party advocacy groups. While firms generally donate mostly to lower-rated politicians (i.e., those with lower environmental and human rights ratings), firms making more sociopolitical claims donate relatively more to higher-rated politicians. The latter is consistent with political alignment but also has further limit: While firms with more claims donate more to higher-rated politicians, they donate no less to lower-rated politicians. Moreover, government subsidies, politicians' power, and community pressure for diversity and environmental disclosures reduce political alignment.
Original languageEnglish
Article number101510
JournalAccounting, Organizations and Society
Volume113
DOIs
Publication statusPublished - 2024

Funding

Our results indicate that firms with more sociopolitical claims contribute relatively more to politicians who receive higher ratings from the LCV and the HRC, supporting the idea that firms' communicated values and political contributions align. However, our results also suggest that overall political alignment is limited. The average HRC/LCV approval ratings of the politicians to which companies donate is low, and even firms in the highest decile of measured sociopolitical claims donate the majority of their contributions to politicians having lower-median ratings from LCV and HRC. Moreover, while firms with more sociopolitical claims donate more to higher-rated politicians, they donate no less to politicians with lower ratings. Thus, alignment is driven primarily by larger donations to higher-rated politicians. Finally, we find that large differences in claims are associated with quantitatively seemingly minor shifts in the allocation of political contributions from lower-rated to higher-rated politicians. Taken together, these findings cast doubt on firms’ overall political alignment, in line with the increasing number of shareholder proposals claiming misalignment between corporate value statements and PAC spending. After linking HRC and LCV ratings to corporate PAC contributions, we calculate the contribution-weighted average rating of all politicians supported per firm and calendar year. We do this separately for HRC and LCV. Politicians' ratings are weighted by a firm's relative contribution (i.e., the amount politician p receives from firm i in year t, scaled by firm i's total PAC contribution in year t). This ensures that the average rating per firm reflects the underlying contribution amounts, as opposed to giving equal weight to each politician supported by a firm. We label these variables PAC HRC and PAC LCV, respectively. An overview of all variables appears in Table A1 in the Appendix.

FundersFunder number
Health Research Council of New Zealand

    Keywords

    • Campaign contributions
    • Corporate values
    • DEI
    • Disclosure
    • ESG
    • Political activity

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