Brian Kelleher Richter

Lobbying and Taxes

Lobbying dominates corporate political spending, but comprehensive studies of the benefits accrued are scarce. Using a dataset of all US firms with publicly available financial statements, we delve into the tax benefits obtained from lobbying. Firms that spend more on lobbying in a given year pay lower effective tax rates in the next year. Increasing registered lobbying expenditures by 1% appears to lower effective tax rates by somewhere in the range of 0.5 to 1.6 percentage points for the average firm that lobbies. While individual firms amass considerable benefits, the costs of lobbying-induced tax breaks appear modest for the government.

Campaign Contributions Over CEOs’ Careers

Individuals dominate money in politics, accounting for over 90% of campaign contributions, but studies of individuals’ giving are scarce. We show that individuals increase their personal contributions dramatically when they assume leadership roles at organizations such as labor unions, non-profits, and firms. Using a newly constructed dataset that focuses on personal contributions, we exploit variation in the leadership status of all 2,198 individuals who were S&P 500 CEOs at any point between 1991 and 2008 to identify a

Bridging Qualitative and Quantitative Methods in Organizational Research: Applications of Synthetic Control Methodology in the U.S. Automobile Industry

4,000 jump in personal political giving when individuals become CEOs. Despite giving more money to more candidates, more political action committees (PACs), and more parties, active CEOs’ partisan orientations remain largely unchanged. Falsification tests of an underlying identification assumption demonstrate that these patterns hold whether an individual is promoted to CEO internally or appointed externally. While some fraction of CEOs’ contributions can be attributed to long-standing preferences, willingness, and ability to contribute, the striking change in behavior we identify cannot be explained by these factors alone.

Campaign Contributions from Corporate Executives in Lieu of Political Action Committees

We assess the utility of synthetic control, a recently developed empirical methodology, for applications in organizational research. Synthetic control acts as a bridge between qualitative and quantitative research methods by enabling researchers to estimate treatment effects in contexts with small samples or few occurrences of a phenomenon or treatment event. The method constructs a counterfactual of a focal firm, or other observational unit, based on an objectively weighted combination of a small number of comparable but untreated firms. By comparing the firm’s actual performance to its counterfactual replica without treatment, synthetic control estimates, under certain assumptions, the magnitude and direction of treatment effects. We illustrate and critique the method in the context of the U.S. auto industry by estimating (a) the effect of government intervention in Chrysler’s management from 2009 to 2011 on its sales volumes and (b) the impact of Toyota’s 2010 “acceleration crisis” on Camry sales.

Why Not Adopt Better Institutions

Limiting corporate participation in electoral politics is a central focus of campaign finance reform. In this spirit, individual candidates for office have prohibited corporate-linked political action committees (PACs) from contributing to their campaigns. On the surface, such no-PAC policies might seem like an effective way to keep corporate-linked monies out of electoral politics; however, they ignore the reality that corporate monies have a variety of ways to find their way into candidates’ campaign accounts. We leverage these candidate-specific refusals to accept PAC monies to uncover concomitant spikes in the pattern of corporate executives’ personal campaign contributions that are most pronounced for executives at firms with active PACs which contributed to the candidates in question. These results come from a newly constructed dataset that includes all CEO–firm–candidate contribution pairs for active S&P500 firms over an 18-year period and suggests that CEOs strategically act in lieu of their firms’ linked PACs.

‘Good’ and ‘Evil’: The Relationship Between Corporate Social Responsibility and Corporate Political Activity

According to Acemoglu, Robinson and Johnson (2002), institutional divergence prior to the Industrial Revolution is the fundamental cause of differences in income levels across countries. To quantify the impact of institutions on long-run growth rates that drive the differences in levels, we adapt their baseline regression. We estimate that improving institutional quality by one standard deviation in their model would have improved a countrys average annual growth rate by only 0.4% over the period from 1820 to 1995. Finite-lived leaders may have preferred the private benefits of expropriation to modest short-run increases in their countrys growth rate, despite the clear long-run benefits of improving institutional quality.

Motivations for Corporate Political Activity

To determine if corporate social responsibility (CSR) and corporate political activity are economic substitutes or economic complements, I assemble and analyze the largest dataset possible from existing data sources incorporating both types of non-market behavior. Examining the joint distribution of an index of firms’ CSR behavior and an indicator of whether or not firms lobby reveals that firms at both the positive and the negative extremes of social responsibility are more likely to have been politically active. Regressing the CSR index and a measure of lobbying intensity, individually, on Tobin’s Q allows me to test whether CSR and corporate political activity separately enhance firms’ value; regressing an interaction between the CSR index and the measure of lobbying intensity on Tobin’s Q, allows me to test whether they play complementary roles in enhancing firms’ value. Higher CSR ratings, more intensive lobbying, and the interaction between the CSR rating and lobbying intensity all appear to increase value when comparing firms; however, when each firm is studied over time, only the interaction between CSR rating and lobbying intensity appear to increase firm value. Taken together this suggests that firms’ CSR positions work as an economic complement to its political activity rather than a substitute – jointly the two types of non-market behavior increase a firm’s value, while independently each activity is more difficult to reconcile and perhaps may simply be symptomatic of some other inherently unobservable firm-fixed characteristic such as ‘good management’. Illustrative cases round-out the large dataset analysis.

Making Causal Inferences in Small Samples Using Synthetic Control Methodology: Did Chrysler Benefit from Government Assistance?

Campaign contributions are typically seen as a strategic investment for firms; recent empirical evidence, however, has shown few connections between firms’ political investments and regulatory or performance improvements, prompting researchers to explore agency-based explanations for corporate politics. By studying intra-firm campaign contributions of CEOs and political action committees (PACs), we investigate these two hypotheses surrounding public politics and demonstrate that strategic and agency-based motivations may hold simultaneously. Exploiting transaction-level data, with over 6.8 million observations, we show that (i) when PACs give to specific candidates, executives give to the same candidates, especially those who are strategically important to the firm; and (ii) when executives give to candidates who are not strategically important, PACs give to the same candidates potentially due to agency problems within the firm.

The Role Political Connections Play in Access to Finance: Evidence from Cross-Listing

We introduce synthetic control analysis to management research. This recently developed statistical methodology overcomes challenges to causal inference in contexts constrained by small samples or few occurrences of the phenomenon of interest. Synthetic control constructs a replica of a focal firm, or other observation unit, based on a weighted combination of untreated firms with similar attributes within the sample population. The method quantifies the magnitude and direction of a treatment effect by comparing the actual performance of a focal unit to its counterfactual replica without treatment. As an illustration, we assess the impact of government intervention in the auto sector on the performance of Chrysler which, following the financial crisis, accepted government support in return for Treasury oversight. The synthetic Chrysler we construct — representing the firm’s estimated performance without government intervention — sold 29% more vehicles in the U.S. than did the actual firm during the intervention period.

Time and the Deep Determinants: Tortoise or Hare?

What role does political influence play in access to finance? Using a comprehensive cross-country dataset, I characterize how and why domestic political connections affect firms’ ability to access all types of finance — exploiting firms’ cross-listing activity as a source of empirical identification. The results extend our understanding from recent single-country studies focused exclusively on domestic bank finance. First, political influence improves firms’ access to finance beyond domestic (bank) debt markets — political connections also improve access to foreign, equity finance. Second, the mechanism through which political influence works to improve access to finance is broader than political coercion of local bankers — political connections function as a firm-level substitute for strong national property rights, reducing connected firms risk premiums vis-a-vis unconnected peers.