Corporate Lobbying and Financial Performance

Hui Chen, Leeds School, Univ. of Colorado
David C. Parsley, OGSM, Vanderbilt University
Ya-Wen Yang, University of Miami

Abstract

Corporate lobbying activities are designed to influence legislators and thus to further corporate goals by encouraging favorable policies and/or outcomes. Using data that became available after the passage of the Lobbying Disclosure Act of 1995, this study evaluates the effectiveness of corporate lobbying from a financial perspective. We find that a firm’s lobbying expenses are positively correlated with its accounting-based financial performance. We also demonstrate that lobbying expenses are value-relevant to firms’ market valuation. Finally, we use a portfolio approach to compare stock returns of lobbying firms with non-lobbying firms. We find that portfolios of firms with higher lobbying intensities significantly outperform their benchmarks as well as portfolios of firms with zero lobbying spending.