Political spending: bad for the bottom line?

Companies that spend heavily on campaigns, lobbying and other political contributions aren’t necessarily helping their own bottom line, according to a new study from Rice University and Long Island University.

Researchers looked at the relationship between corporate political giving and financial returns for 943 companies between 1998 and 2008, and discovered that companies’ political investments “are negatively associated with market performance.”

(Linda Davidson - THE WASHINGTON POST) What’s more, the revolving door between government and business doesn’t seem to help their performance either. “Firms placing former public officials on their boards experienced inferior market performance and similar accounting performance than firms without such board members,” a press statement on the study explains.

Why doesn’t political giving pay? Researchers have a couple of explanations: executives who support political giving might generally make overly risky business decisions, and personal ideological beliefs can trump business pragmatism when it comes to giving as well.

That said, there is one exception to their findings: for companies in highly regulated industries, there is a link between political giving and company performance. “In regulated industries, firms are better able to target specific agencies and get to know their staff, which is more likely to result in more stable interactions,” Doug Schuler, a Rice University professor and study co-author said in the statement. And as my colleague Brad has pointed out, there seem to be other upsides of lobbying for a company’s bottom line: firms that lobby aggressively when Congress takes up tax legislation end up paying the least in corporate taxes.

(h/t Tim Mak)