Changes in Firms’ Political Investment Opportunities, Managerial Accountability, and Reputational Risk

Journal of Business Ethics:1-25 (forthcoming)

Abstract
We use the U.S. Supreme Court’s decision in Citizens United v. Federal Election Commission to assess the reputational risks created by political investment opportunities that allow managers to spend unlimited and potentially undisclosed firm resources on independent political expenditures. This new opportunity raises important ethical questions, as it is difficult, and perhaps impossible, under current law for shareholders to hold managers accountable for this investment choice and the reputational risks it entails. Using firms’ known political activity as a proxy for managers’ likely future use of independent political expenditures, we examine how market participants reacted to Citizens United, conditional on this prior activity and corporate governance attributes related to the concentration of decision rights in senior management and blockholders. The results of our analyses document that firms with both a high level of known political activity and CEO-chairperson of the board duality experienced negative abnormal returns in reaction to Citizens United. In contrast, firms with concentrated ownership experienced positive abnormal returns; however, as known political activity increased, investors discounted the benefits of concentrated ownership. These findings suggest that investors expect this expansion of firms’ political investment opportunities to amplify principal-agent problems inherent in corporate political activity. Additionally, our findings provide evidence for those deliberating the mandatory disclosure of firms’ investments in politics as a means of increasing managerial accountability to both shareholders and the public.
Keywords No keywords specified (fix it)
Categories (categorize this paper)
DOI 10.1007/s10551-019-04224-6
Options
Edit this record
Mark as duplicate
Export citation
Find it on Scholar
Request removal from index
Revision history

Download options

Our Archive


Upload a copy of this paper     Check publisher's policy     Papers currently archived: 46,425
External links

Setup an account with your affiliations in order to access resources via your University's proxy server
Configure custom proxy (use this if your affiliation does not provide a proxy)
Through your library

References found in this work BETA

Corporate Political Speech and Moral Obligation.Mary Lyn Stoll - 2015 - Journal of Business Ethics 132 (3):553-563.

Add more references

Citations of this work BETA

Add more citations

Similar books and articles

Antecedents of Corporate Political Finance Disclosure.Naomi A. Gardberg, Donald H. Schepers & Louis Lipani - 2011 - Proceedings of the International Association for Business and Society 22:424-435.
Is There Informational Value in Corporate Giving?Kiyoung Chang, Hoje Jo & Ying Li - 2018 - Journal of Business Ethics 151 (2):473-496.

Analytics

Added to PP index
2019-06-11

Total views
10 ( #776,359 of 2,286,383 )

Recent downloads (6 months)
2 ( #582,474 of 2,286,383 )

How can I increase my downloads?

Downloads

My notes

Sign in to use this feature