Does Political Giving Impact Shareholder Wealth? Evidence from State Campaign Finance Reforms

Does corporate political giving actually affect shareholder wealth? While firms value political participation, some lawmakers oppose corporate involvement in politics. Yet, the existing literature has established a correlation between campaign finance and corporate outcomes without fully documenting a causal relation. I use an innovative database of political giving to exploit changes in state campaign finance laws as an exogenous shock to political giving. Specifically, I use the staggered adoption of externally imposed legal limits to political giving across U.S. states to expose how shareholder wealth responds. I find shareholder wealth declines following legally imposed reductions in political giving. The causal effect of political giving on shareholder wealth that I find speaks to the larger role of politics in firms and the economy. The results suggest corporate political giving leads to greater shareholder wealth, and reforms reduce corporate political participation, informing the debate around campaign finance reform.