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Socially Responsible Corporations with Heavy PAC Contributors Associated with Higher Stock Returns

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Companies, labor unions and other organizations spend billions each year to lobby Congress and federal agencies, often resulting in business- and tax-friendly decisions. But what about company managers who give as individuals to efforts to influence policy or elections?

In a new study, Professor Paul Griffin found that public companies that tout social responsibility and whose managers contribute to political action committees tend to provide higher returns to shareholders.

“Especially for smaller public companies, if the firm has been active in disclosing corporate social responsibility measures and if the individuals in the company are politically active, there’s a good chance you will do better in the stock market if you invest in that company,” says Griffin.

Griffin and co-author Yuan Sun, a doctoral candidate at UC Berkeley’s Haas School, analyzed extensive data on voluntary corporate social responsibility disclosures, campaign contributions and stock performance. Their paper, “Strange Bedfellows? Voluntary CSR Disclosure and Politics,” will be published in the journal Accounting & Finance.

They found that companies were more likely to make social responsibility disclosures if they were headquartered in a “blue state,” or one that traditionally has voted Democratic. “We hypothesized that if a state where a corporation is located is blue, on balance, the customers, the suppliers, and even the shareholders have that same tendency to be blue,” Griffin says.

Griffin and Sun determined that companies that issue more press releases on CSRwire, an online news service that publishes reports issued by member organizations on issues related to sustainability and CSR, tend to have more management employees who contribute to political action committees. The correlation was strongest with individuals who donated to political action committees affiliated with the Democratic Party.

Additionally, the stock market reacted favorably when corporations posted news releases on CSRwire. The market effect intensified if managers also made contributions to political action committees. “The effects on stock values of CSRwire releases are immediate and can continue for up to three months after the disclosure,” Griffin says.

He cautions that while the correlations are strong, researchers need to look more closely at the underlying pathways whereby CSR disclosure and political contributions combine to produce shareholder gains.

Griffin was recently named a Fellow of the New Zealand Institute of Chartered Accountants, which honored him for distinction, excellence and service to the accountancy profession in New Zealand.

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