Investing in influence: Investors, portfolio firms, and political giving; Professor Raymond FISMAN (Boston University)

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 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 near-doubling in comovement). This pattern is observed for passive 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” and more activist investors, and we show that firms shift their giving more around acquisitions than investors do. Finally, we examine whether ownership provides a disproportionate shift in giving, as a window into the governance of corporations. We show that the ownership-PAC elasticity is less than unity for our full sample, though it is much larger than one for acquisitions in cases in which initial institutional ownership is low. Complementing this finding, we show that overall corporate PAC giving is increasing in corporate ownership. Together, these results fit with a model of governance in which concentrated owners both extract and compete for private benefits in their portfolio firms.