Political Activity of Firms: The Role of Firm-lobbying Networks and Industry Trade Associations

Most corporate political spending consists of lobbying expenditures and candidate contributions from a firm’s Political Action Committee. We examine how the political spending of industry trade  associations  and  lobbyist’s  networks  of  clients  affect  a  firm’s  political  strategy.    The political  expenditures  of  trade  associations  are  of  the  same  economic  importance  as  the expenditures  of  corporations,  and  corporations  and  their  trade  associations  support  the  same candidates. The average lobbyist in our sample has more than 40 clients and we find evidence of coordinated political spending across those clients.  Firms are more likely to support a candidate if their lobbyist also personally contributes to that candidate. Firms are more likely to support an incumbent  candidate  that  currently  serves  on  a  committee  that  regulates  the  firm’s  industry.  However, a firm is also more likely to contribute to a candidate that serves on a committee that is unrelated to its industry if that candidate serves on a committee that regulates another firm in the same lobbying network. Measures  of  the  strength  and  quality  of  the  lobbyist  network  are positively  correlated  with  future  stock  returns  even  after  controlling  for  the  direct  political spending of the firm.

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