Theoretical Light in Empirical Darkness: Illuminating Concealment of Corporate Political Activity

Nan Jia (University of Southern California)
Stan Markus (University of South Carolina)
Tim Werner (University of Texas at Austin)

Abstract : Law-abiding firms often attempt to conceal their corporate political activity (CPA) in whole or in part, yet the increased concealment of CPA has not been matched by our understanding of the phenomenon. We develop a theoretical framework to analyze the drivers of a firm’s decision to “go dark,” The overarching logic is anchored in the demand-side for nonmarket action and argues that firms will be more likely to conceal their CPA when it increases their expected return from engaging in CPA on an issue. We develop a baseline model of a firm’s decision regarding its CPA modality (i.e., its degree of concealment) on an issue while holding its CPA volume constant, and based upon this model’s parameters, we then develop propositions regarding changes in the level of a firm’s CPA concealment. We argue that theory is particularly important for investigating consequential phenomena that yield scarce data – it is theory which guides data discovery ex ante, helps assess bias ex post, and uncovers key insights that empirical analysis alone cannot generate.

Is U.s. Formalized Lobbying More About Nefarious Corruption or Benign Industry Information Provision? Evidence from Foreign Firms Lobbying in the U.s.

Jin Hyung Kim (George Washington University)
Jordan I. Siegel (University of Michigan)

Abstract : The literature on lobbying and corruption is at an impasse between those studies arguing that U.S. formal corporate lobbying with mandated disclosure is primarily a conduit for corruption and other studies that contend that this type of corporate lobbying is primarily about benign industry information provision to policy makers. Prior work demonstrated how home-country corruption is a robust predictor of corrupt behavior by home country-based groupings of foreign diplomats residing in the United States. In this study, using a rarely utilized data set on U.S. formal lobbying with mandated disclosure at the federal level, we ask whether instrumented home country corruption is a robust predictor of U.S. formal corporate lobbying with mandated disclosure by home country-based groupings of foreign companies operating in the United States. In a counterintuitive finding, we show that U.S. formal lobbying is far more likely to be conducted by companies from the least corrupt home countries. This is true after relying on a proven instrumental variables (IV) approach for identification and after ruling out other alternative explanations based on country wealth, industry portfolio, and innovation. Overall, the results are consistent with the idea that U.S. formal corporate lobbying is relatively more about benign industry information provision to policy makers than about nefarious corruption. Other channels such as bribery still could remain for companies from the most corrupt countries to engage in nefarious corruption in the U.S.

The Hydraulics of Dark Money

Amanda Shanor (The Wharton School)
Timothy Werner (University of Texas - Austin)
Mary McDonnell (The Wharton School)

Abstract : While commentators debate about the likely policy implications of increased disclosure of corporate political activity, disclosure policies vary significantly across firms’ available political tactics and little is known about why firms elect to use darker, versus more transparent, tactics of political influence. We shed light on this by exploring the relationship between a firm's reputation and the tactics it employs to engage in corporate political activity. We argue that political markets are more constrained for less reputable firms because politicians, fearing stigma by association, avoid openly associating with disreputable organizations. This results in less reputable firms having to resort to less traceable forms of CPA, or tactics that do not create an observable tie between the firm and any individual politician or political party. We demonstrate support for this relationship in a longitudinal analysis tracing the CPA of members of the S&P 500 in the decade ending in 2009. We provide additional support for our findings in a supplementary instrumental variables analysis, a difference-in-difference analysis around reputational shocks in the form of consumer boycotts, and an analysis of the disclosure practices adopted by campaigns when reporting contributions from corporate CEOs.