Matilde Bombardini, University of California-Berkeley
Raymond Fisman, Boston University
Francesco Trebbi, University of California-Berkeley
Eyub Yegen, Hong Kong University of Science & Technology
Abstract: We examine how the rise of institutional ownership has influenced firms’ political activities. 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 investor. Consistent with a causal interpretation, this pattern is also observed for acquisitions driven by new index inclusions. The pattern is stronger when firms’ management faces a shareholder proposal vote and may thus need the investor’s support. We further show that firms’ giving shifts away from business-relevant politicians and is also strongly aligned with the individual campaign donations of the institutional investors’ employees. These results, together with the finding that the effects are larger for more “partisan” as well as privately owned investors, suggest that influence is driven by institutional investors’ own political views, rather than a profit-maximizing strategy.
Abstract: We present a model with conflicting political preferences among investors. We show that heterogeneous political preferences endogenously lead to polarized corporate political stances and partisanship in portfolio holdings. Expected stock returns of partisan firms are lower than those of politically neutral firms in a competitive equilibrium, and the return gap is amplified if corporate partisanship reduces expected cash flows, and mitigated if centrist investors grow in influence. While value-maximizing corporate political stances maximize aggregate welfare under certain conditions, they impose disutilities on dissenting investors and are susceptible
to influence by a politically active large investor. If the cost of such influence activity is low, protecting small shareholders by requiring corporate political stance to match the ownership-weighted average of shareholder preferences can increase aggregate welfare.
Abstract: We study the effect of partisan media on corporate social responsibility (CSR) ratings using the staggered expansion of Sinclair Broadcast Group, the largest conservative network in the U.S. regional TV markets. After Sinclair entry, CSR ratings of local firms decline across all dimensions: environmental, social, and governance. The effect operates through two mutually non-exclusive channels: changes in ideology and reduction in local coverage. We provide evidence consistent with the first channel based on public opinion surveys, election results, and firms' political contributions. Consistent with the second channel, the effect is larger for firms with higher customer awareness, low institutional ownership, in sin industries, and in Sinclair-dominated markets.
Discussant: Vishal Baloria, University of Connecticut
