In Search of El Dorado: The Elusive Financial Returns on Corporate Political Investments

SMC Author

Michael Hadani

SMC Affiliated Work

1

Status

Faculty

School

School of Economics and Business Administration

Department

Management and Entrepreneurship

Document Type

Article

Publication Date

2-2013

Publication / Conference / Sponsorship

Strategic Management Journal

Description/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.

Scholarly

yes

Peer Reviewed

1

DOI

10.1002/smj.2006

Volume

34

Issue

2

First Page

165

Last Page

181

Disciplines

Business | Economics

Original Citation

Hadani, M., & Schuler, D. (2013). In search of El Dorado: The elusive financial returns on corporate political investments. Strategic Management Journal, 34 (2), 165–181. doi:10.1002/smj.2006

Link to Full Text

Share

COinS