Ownership structure and political spending disclosure

Abstract

This study examines the link between ownership structure and political spending disclosure (PSD). We break down ownership into four different groups of shareholders: institutional, insider, governmental and foreign. Using a unique dataset provided by CPA-Zicklin for PSD and a panel dataset from S&P 500 companies between 2015 and 2018, our results reveal that institutional and governmental ownership are positively associated with the level of PSD, while insider ownership is negatively associated with the level of PSD. Additionally, while prior literature mainly investigated how ownership structure influences disclosure practices, we analyse the mechanisms through which ownership characteristics influence PSD. Our cross-sectional tests provide evidence that insider owners exhibit more PSD if they are pursing tax-related lobbying expenses and tax avoidance practices. Additionally, governmental owners demand lower PSD in firms with higher nonfinancial and financial reporting quality. Finally, institutional owners demand more PSD in the case of lower industry concentration. Overall, we conclude that different owners have distinct impacts and preferences on a firm's political strategy and various mechanisms uniquely operationalise the interactions between different owners and political transparency. Through agency theory, our results advance heated debates on PSDan emerging, yet hitherto less examined, category of voluntary disclosure.

Corporate Governance and Corporate Political Responsibility

“…Although firms disclose political action committee contributions and lobbying expenditures, firms are not required to disclose other types of political expenditures such as contributions to trade associations, social welfare organizations, and super political action committees (Baloria et al, 2019;Beets & Beets, 2019;Jia et al, 2021). Furthermore, political spending can be channeled and concealed via financial intermediaries such as social welfare organizations and thereby expenditures remain undisclosed in any public record, leaving corporate owners with significant information-asymmetry gaps (Ali et al, 2022;Goh et al, 2020). 1 Given the large amount of funds that firms expend on corporate political activity and the growing societal demand for PSD, firms have a fiduciary responsibility to disclose this information to demonstrate their accountability to the public (Richter, 2014).…”

“…Firms face increasing pressure from stakeholders demanding more transparent corporate political spending disclosures (PSD), especially after the U.S. Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission , which allowed corporations to make unlimited political expenditures with no strict public disclosure requirement (Beets & Beets, 2019; Cohen et al, 2019; Goh et al, 2020; Skaife & Werner, 2020). According to the Center for Responsive Politics, firms spent $3.5 billion on corporate lobbying in 2020, and these expenditures are expected to increase significantly in the future (Ali et al, 2022). Although firms disclose political action committee contributions and lobbying expenditures, firms are not required to disclose other types of political expenditures such as contributions to trade associations, social welfare organizations, and super political action committees (Baloria et al, 2019; Beets & Beets, 2019; Jia et al, 2021).…”

“…For example, Dahan and colleagues (2013) find that a firm’s weak corporate governance systems allow executives to abuse corporate political activity, which may diminish political sustainability and cause additional conflicts with shareholders. Prior research has also analyzed the drivers of PSD, including the political connections of board members, institutional ownership, and corporate lobbying (Goh et al, 2020), ownership structure (Ali et al, 2022), specialized political committees (DeBoskey et al, 2018), corporate Twitter accounts (Lei et al, 2019), and shareholder proposals (Baloria et al, 2019). We extend this research theoretically by looking at PSD through the lens of corporate governance and applying a dual theoretical perspective that incorporates insights from both agency theory and resource dependence theory (Goh et al, 2020).…”

The effect of corporate donation motive attribution on investors' judgments of future earnings prospects: The moderating role of individual moral orientation

“…Existing studies have consistently found that some types of donations have negative effects. For example, the mandating (Prabhat & Primo, 2019) and voluntary (Ali et al, 2022) disclosures of political donations likely lead to negative returns (Aggarwal et al, 2012; Prabhat & Primo, 2019). For other types of donations, such as cash donations, although many studies indicate various positive effects, for example, increased product sales (Menon & Kahn, 2003), enhanced employee productivity (Balakrishnan et al, 2011; Lu et al, 2020; Saiia et al, 2003), and improved capital benefits (Dhaliwal et al, 2011, 2012), some find negative or null effects (e.g., Cho et al, 2015; Krüger, 2015; Wang et al, 2011).…”

“…However, not all donation behavior yields the expected positive effects. Existing studies have consistently found that some types of donations have negative effects.For example, the mandating (Prabhat & Primo, 2019) and voluntary (Ali et al, 2022) disclosures of political donations likely lead to negative returns (Aggarwal et al, 2012;Prabhat & Primo, 2019). For other types of donations, such as cash donations, although many studies indicate various positive effects, for example, increased product sales (Menon & Kahn, 2003), enhanced employee produc-…”