Working Paper: CEPR ID: DP17843
Authors: Marianne Bertrand; Matilde Bombardini; Raymond Fisman; Francesco Trebbi; Eyub Yegen
Abstract: Institutional ownership of U.S. corporations has increased ten-fold since 1950. We examine whether these new concentrated owners influence portfolio firms’ political activities, as a window into the larger question of whether institutional investors can wield their control to extract benefits from portfolio firms. We find that after the acquisition of a large stake, a firm’s political action committee (PAC) giving mirrors more closely that of the acquiring investment management company (in our preferred specification, a 31 percent increase in comovement). This pattern is observed for acquisitions driven by new index inclusions, which suggests that our findings result from a causal effect of acquisitions rather than other correlated shifts in political agendas. We argue that investors drive the convergence in giving - the effects are driven by more “partisan” investors, and we show that firms shift their giving more around acquisitions than investors do. Overall, our findings suggest that corporations’ political business strategies are likely dictated by broader considerations than simple profit, and modeling corporate influence should take into account how corporations are governed.
Keywords: No keywords provided
JEL Codes: P0; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Institutional investor acquisition (G23) | Firm PAC giving (D64) |
| Institutional investor acquisition linked to new index inclusion (G23) | Firm PAC giving alignment (L29) |
| More partisan investors (G40) | Firm PAC giving alignment (L29) |
| Investor board seat acquisition (G34) | Firm PAC giving alignment (L29) |
| Investor influence (G24) | Firm political contributions (D72) |
| Firm PAC giving alignment (L29) | Firm political business strategies (L21) |