The Hydraulics of Dark Money

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.