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New Report: Claim that corporate political speech hurts shareholders is false

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A new Manhattan Institute legal policy report titled Corporate Political Spending: Why the New Critics Are Wrong, authored by economists Robert Shapiro and Doug Dowson, finds that "corporate political efforts generally have positive effects on a firm's market value and its shareholder returns." Shapiro, a former Under Secretary of Commerce for Economic Affairs under then-president Bill Clinton, and his present-day colleague Doug Dowson at the economic advisory firm Sonecon, LLC., closely examine academic literature on the topic of corporate political spending and conduct their own analysis.

As reported in the Wall Street Journal today:

Mr. Shapiro and Mr. Dowson looked at studies covering corporate political spending from 1974 to 2011, when most corporate political spending flowed through political action committees. Not surprisingly, the heaviest political spending was done by companies in industries that were heavily regulated, highly concentrated or when they received much of their revenue from government.

Corporate political spending yields a variety of benefits, such as lower taxes, more favorable regulation or in some cases earmarks that help the business. This improves returns for shareholders by 2% to 5% a year, depending on the study, but the authors find "no credible evidence" that political activity harms firms.

The report responds generally to the renewed interest taken by activists in political spending by corporations in the wake of the Citizens United decision. Shapiro and Dawson respond specifically and directly however, to three recent studies, two by John Coates and one by Rajesh Aggarwal, purporting to show that political expenditures by corporations harm share value.

Some recent studies have claimed evidence of harm, but Messrs. Shapiro and Dowson looked at the same data and found methodological and other errors.

For example, Harvard Law School's John Coates argues in recent studies that corporations become involved in politics mainly because their executives want to. They then become distracted and lose their strategic business focus. But Messrs. Shapiro and Dowson found problems in the studies with causation and selection bias, and they conclude that Mr. Coates's evidence fails to prove any negative effect on shareholder value and occasionally supports the opposite conclusion.

In a better world, corporations wouldn't have to devote money and time to politics. This would have the added benefit of less rent-seeking via earmarks and tax preferences. But politicians have created a gargantuan state that is so intrusive that businesses have no alternative than to spend money to defend themselves and their shareholders from such arbitrary looting as the medical device tax in ObamaCare. Liberals want business to disarm unilaterally.

Our own Jim Copland, director of Manhattan Institute's Center for Legal Policy followed up with Shapiro in a podcast interview to discuss the report in greater depth. Even on the surface however, this study strongly refutes a budding trend responsible for a significant increase in activist shareholder efforts to stifle corporate speech.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.