Publications
The reputational costs of connections to controversial politicians: Evidence from political scandals
- with Jacco Wielhouwer, 2024, Journal of Business Finance & Accounting.
Abstract: We use the exogenous nature of political scandals to test whether political connections in the form of campaign contributions expose firms to reputational risk. We hand-collect a sample of 218 scandals of members of the U.S. Congress that occurred between 2000 and 2019 and estimate the abnormal returns around the day a scandal first appeared in the news. We find that connected firms and to a lesser extent other politically active firms experience value losses around corruption scandals involving firms or lobbyists. These losses increase in managers’ propensity to engage in unethical behavior. Moreover, we find that following such corruption scandals, media sources release negative news about connected firms, shareholders of connected firms are more likely to submit proposals on the disclosure of political contributions, and connected firms reduce political spending. Overall, our results suggest that losses around scandals are driven by reputation spillover and investors updating their beliefs about the risks of political contributions.
Do firms put their money where their mouth is? Sociopolitical claims and corporate political activity
- with Malte Max, 2023, Accounting, Organizations and Society
Abstract: Firms increasingly respond to stakeholder demands by making public claims about their stances on polarizing issues, but at the same time their political activities may contradict their claims. We analyze the extent to which firms’ sociopolitical claims and their political action committee contributions align. We develop a dictionary of claims related to diversity and environmental protection based on word combinations in firm communications and link firms’ political contributions to candidate approval ratings provided by third-party advocacy groups. While firms generally donate mostly to lower-rated politicians (i.e., those with lower environmental and human rights ratings), firms making more sociopolitical claims donate relatively more to higher-rated politicians. The latter is consistent with political alignment but also has further limit: While firms with more claims donate more to higher-rated politicians, they donate no less to lower-rated politicians. Moreover, government subsidies, politicians’ power, and community pressure for diversity and environmental disclosures reduce political alignment.
How do corporate political connections influence financial reporting? A synthesis of the literature
- with Roland Königsgruber, 2021, Journal of Accounting and Public Policy
A supplementary excel online appendix presents all reviewed papers sortable by journal, outcome variable, country, etc., available here (spreadsheet), and here (file description)
Abstract: A large stream of research has analyzed the effects of corporate political connections (CPCs) on firms, including first evidence on their effects on financial reporting behavior. However, the evidence so far is inconclusive, and attempts to explain the causality of effects on reporting are limited. In this article, we present the results of a systematic review of the literature on CPCs. We draw on findings in the accounting, finance, and economics literature and derive a framework that identifies four channels through which CPCs affect financial reporting. Our review of the literature suggests that effects of political connections tend to be more ambiguous than suggested by individual studies that often offer directional hypotheses. We also identify eight distinct types of political connectedness and discuss their interrelations and the proxies used in the literature to measure them.