The economics of corporate lobbying: Lobbying does not appear to bring significant tangible benefits in terms of award of government contracts or the success in getting bills passed by the US Congress

The economics of corporate lobbying. lZhiyan Cao et al. Journal of Corporate Finance, https://doi.org/10.1016/j.jcorpfin.2017.12.012

Highlights
•    Corporate lobbying is negatively associated with firm performance in an average firm.
•    Performance effects of corporate lobbying vary by firm characteristics
•    Firms with complex operations appear to lose when spend more on lobbying
•    Firms with high growth opportunities are likely to benefit from lobbying
•    Lobbying does not appear to bring significant tangible benefits in terms of award of government contracts or the success in getting bills passed by the US Congress.
•    Political alignment between a firm and the party in government appear to bring some benefits to the firm contributing to PACs associated with the party in power.
•    Primary results are robust to various econometric methods that are used to mitigate potential endogeneity concerns, sensitivity analyses and sample selection concerns.

Abstract: Prior literature examines motivations and impact of corporate lobbying and presents inconclusive evidence. We examine the association of corporate lobbying with firm performance by focusing on how this relationship varies by firm characteristics. Addressing various endogeneity concerns, our analysis shows that corporate lobbying has a negative association with firm performance. We find that the negative association of corporate lobbying on firm performance is largely driven by operationally complex firms. On the other hand, firms with high growth opportunities benefit more from lobbying than low-growth firms. Lobbying seems to provide limited tangible benefits in terms of government contracts obtained or the success of congressional bills passed. These results suggest that agency costs dominate the strategic benefits of lobbying activities. However, there is some evidence that firms benefit when there is political alignment between the firm and the party in power.