Is Corporate Political Activity an Investment or Agency? An Application of System GMM Approach

Abstract

Corporate political activity (CPA) has been recognized as bearing a significant impact on financial performance (FP). Nevertheless, there has been a lack of considerable research to date. The results of the research regarding the relationship between CPA and FP have been contradictory and this has necessitated further investigation of this relationship. Nonetheless, rather than examining the relationship between CPA and FP, research scholars have revealed that a contingency perspective must be employed for revealing the conditions and the context which enhance the relationship between these two constructs. This study offers a quite distinctive viewpoint with respect to the link between CPA and FP as regards the corporate reputation perspective. For this reason, the study obtained data from the Fortune list of top 100 World Most Admired Companies (WMAC) for the period of 2007 and 2016. This data was utilized to examine the relationship between CPA and FP using the dynamic panel data system GMM (Generalized Method of Moments) estimator. This study finds virtually no support for the hypothesis that lobbying and PACs (political action committees) represent an investment in political capital. Instead, CPA is symptomatic of agency problems within firms. This study also argues that corporate reputation moderates the effect of CPA on the FP and the analysis supports the argument. Our results are particularly useful in light of the reputable corporation, which is greatly to likely increase the use of corporate funds for political contributions.

Nexus of regional integration, socioeconomic determinants and sustainable development in belt and road initiative countries

“…Therefore, GMM provides more efficient and accurate estimates by controlling the lag-effect of its own dependent variable-SD to predict the future more accurately in the long term. Thus, previous studies of Arellano and Bond [ 71 ], Arellano and Bover [ 72 ], Blundell and Bond [ 73 ], Roodman [ 74 ], Farhadi, Islam [ 75 ], Arminen and Menegaki [ 76 ], Lin [ 77 ], Ahmad, Khattak [ 78 ], Abbas, Gillani [ 22 ], and Ullah, Kui [ 24 ] relied on and preferred this technique for the panel dataset. To deal with the potential endogeneity issues, the GMM estimator is best suited.…”

“…By following the earlier mentioned equations and studies of Abbas, Gillani [ 22 ], Koirala and Pradhan [ 28 ], Ahmad, Khattak [ 78 ], Arminen and Menegaki [ 76 ], Lin [ 77 ], Waisman, Ye [ 69 ] and Pardi, Salleh [ 16 ], the econometric model can be written as follows;…”

Padrinhos e caciques: o lado sombrio da atividade política corporativa na captura do Estado

“…Apesar de haver outras atividades políticas corporativas, as categorias aqui analisadas vão ao encontro de outros estudos que mostram como o setor de construção pesada se vale do seu próximo relacionamento com o poder público para enriquecer de forma lícita e ilícita (Arewa & Farrell, 2015). As empresas que se engajam em atividades políticas se valem de um conjunto dessas estratégias combinadas (Schuler et al, 2002) e ainda assim seu retorno não é financeiro, mas uma influência a longo prazo (Lin, 2019). O lobby é a interferência de grupos da sociedade civil no processo legislativo (Hillman et al, 2004;Rodrigues, 1996).…”

“…As doações de campanha são formas diretas de contribuição a políticos e partidos. Aggarwal, Meschke e Wang (2012) afirmam que as doações de campanha não são investimentos por não melhorarem a performance das empresas, mas são problemas de agência em que executivos doam para políticos de sua preferência sem passar pelo escrutínio dos stakeholders (Lin, 2019). Hadani e Schuler (2013) confirmam essa ideia, mas ressaltam que as doações de campanha aumentam a performance em mercados regulamentados como o setor de construção.…”

Electoral system, corporate political donation, and carbon emission intensity: Cross‐country evidence

“…Numerous studies attempted to determine drivers of corporate political donations and associated consequences on the public policy arena (Brasher & Lowery, 2006;Gray, Lowery, Fellowes, & Anderson, 2005;Lowery, 2007). Some scholars label this as agency driven activity while others argue it is an investment for future return (Aggarwal, Meschke, & Wang, 2012;Hadani & Schuler, 2013;Lin, 2019;Mathur et al, 2013). Moreover, some research shows the positive association of political connections with corporate value (Bliss & Gul, 2012;Fung et al, 2015), tax aggressiveness (Kim & Zhang, 2016), and buffer from government demands (Zhang et al, 2016).…”