Hazards of political connections for shareholders

Susanne Charlotte-Pauline Genevieve Preuss

Research output: PhD ThesisPhD-Thesis - Research and graduation internal

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Abstract

In this dissertation I examine hazards of firms’ political connections for shareholders. I first synthesize, by means of a systematic literature review, existing evidence on the benefits and costs of corporate political connections for shareholders and propose that the effect of political connections on corporate outcomes may depend in part on shareholders’ ability to monitor political ties. In addition, I collect data on political connections in the U.S. and examine whether firms align their visible political activities with their disclosed corporate values. To be precise, I explore whether firms that promote diversity and environmental protection also provide financial support to politicians who share the same ideology. While the results confirm that political support and corporate values are at least partially aligned, they also hint at the risk that firms may strategically pursue opaque unaligned political activities to avoid public or regulatory scrutiny. In fact, the analyses reveal that firms that make more environmental claims spend more on environmental lobbying, a political activity that is comparatively difficult to trace. Finally, I find that political connections expose firms to reputational risks. I document that politically connected firms experience share price losses around political scandals. This effect extends to other firms that are politically active but not directly connected to the scandal politician, implying that investors experience difficulties in identifying political ties. Overall, the results in this dissertation suggests that (i) firms’ political connections can have both positive and negative consequences for shareholders, (ii) these connections do not necessarily align with firms’ communicated corporate values, and (iii) these costs, benefits, and alignment are difficult if not impossible to assess in the absence of credible political activity disclosures. It is a longstanding discussion whether firms should be required to disclose their political activities or connections. While proponents of mandatory disclosures argue that shareholders have the right to know whether their invested capital is used for political purposes, opponents fear that disclosures may deter firms from engaging in value generating political activities. The results in this dissertation shed more light on potential hazards of political activities for shareholders and thereby on the possible benefits of mandated disclosure of such activities.
Original languageEnglish
QualificationPhD
Awarding Institution
  • Vrije Universiteit Amsterdam
Supervisors/Advisors
  • Wielhouwer, JL, Supervisor
  • Dekker, Henri, Supervisor
  • Koenigsgruber, Roland, Co-supervisor, -
Award date14 Apr 2022
Publisher
Print ISBNs9789036105668
Electronic ISBNs9789036105668
Publication statusPublished - 14 Apr 2022

Keywords

  • Campaign contributions, corporate values, corruption, disclosure, ESG, financial reporting, lobbying, political connections, political scandals, reputation

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