Corporate campaign contributions and abnormal stock returns after presidential elections
- 805 Downloads
Contributions by investor-owned companies play major roles in financing the campaigns of candidates for elective office in the United States. We look at the presidential level and analyze contributions by companies before an election and their stock market performance following US presidential elections from 1992 to 2004. We find that companies experienced abnormal positive post-election returns with (i) a higher percentage of contributions given to the eventual winner and (ii) with a higher total contribution given. Hypothetical portfolios of the 30 largest corporate contributors formed according to (i) the percentage of contributions given to the winner in a presidential election and (ii) the total contribution (divided by market capitalization) would have earned significant abnormal returns in the two years after an election. While all results hold for Bill Clinton and George W. Bush, they are stronger by a magnitude of two to three under W. Bush.
KeywordsPresidential election Corporate campaign contributions Abnormal returns
JEL ClassificationD72 G10 P16
We thank Michael Hanke, Florian Hauser, Thomas Stöckl, Shyam Sunder, and participants at seminars at the University of Innsbruck and at Yale University for helpful comments. We would also like to thank the Editor and two anonymous referees for very helpful comments and suggestions. Daniel Kleinlercher provided excellent research assistance.
- Aggarwal, R., Meschke, F., & Wang, T. (2007). Corporate political contributions: investment or agency? Google Scholar
- Cooper, M., Gulen, H., & Ovtchinnikov, A. (2008). Corporate political contributions and stock returns (Working Paper). Google Scholar
- Grossman, G., & Helpman, E. (1994). Protection for sale. American Economic Review, 84(4), 833–850. Google Scholar
- Hart, D. (2001). Why do some firms give? Why do some give a lot? High-tech PACs, 1977–1996. Journal of Politics, 63, 1230–1249. Google Scholar
- Hibbs, D. (1987). The American political economy: electoral policy and macroeconomics in contemporary America. Cambridge: Harvard University Press. Google Scholar
- Krueger, A. (1974). The political economy of the rent-seeking society. American Economic Review, 64, 291–303. Google Scholar
- Office of Management and Budget, Executive Office of the President (2011). URL: http://www.google.com/publicdata/explore?ds=z6tggkh2adod2s_&ctype=l&strail=false&bcs=d&nselm=h&met_y=spendings&hl=en&dl=en.
- Rogoff, K. (1990). Equilibrium political budget cycles. American Economic Review, 80(1), 21–36. Google Scholar
- Sharpe, W. (1964). Capital asset prices: a theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425–442. Google Scholar
- Stratmann, T. (2002). Can special interests buy congressional votes? Evidence from financial services legislation. Journal of Law and Economics, 41(3), 85–113. Google Scholar
- Tullock, G. (1967). The welfare costs of tariffs, monopolies, and theft. Western Economic Journal, 5, 224–232. Google Scholar
- von Hayek, F. A. (1945). The use of knowledge in society. American Economic Review, 35(4), 519–530. Google Scholar