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It's the structure of a firm's governance that may cause shareholders to walk away if they think they can't hold the firm accountable for its political activity, according to a new study.
The research provides empirical evidence to inform the debate surrounding whether companies should be required to disclose details of their investments in political activities as a means of increasing accountability to both shareholders and the public.
Journal - Business - Ethics - Online - Study
Published by the Journal of Business Ethics and available online, the study was co-authored by Hollis Skaife, an accounting professor at the University of California, Davis, and Timothy Werner, an associate business professor at the University of Texas at Austin.
"The study clearly presents the various ways that U.S. companies can influence the political process via campaign finance," Skaife said, "and what risk it presents to the average investor because of the lack of transparency over the amounts spent."
Authors - US - Equity - Market - Reaction
The authors used the U.S. equity market's reaction to Citizens United to assess the reputational risks in the opportunities that the U.S. Supreme Court ruling created for managers to spend unlimited, and potentially undisclosed, firm resources on independent political expenditures, or IPEs. These opportunities include channeling "dark money," which is untraceable, through certain nonprofits and trade associations.
Skaife and Werner found that companies known to be engaged in political spending and with concentrated decision rights experienced significant declines in market value at the time of four events surrounding Citizens United v. Federal Election Commission.
Skaife - Years - Shareholders - Public - IPE
Skaife said that more than nine years later, it remains difficult, if not impossible, for shareholders and the public to determine the IPE investments managers are making. "One of the few ways in which shareholders can hold managers to account for the opportunity to engage in such forms of covert (corporate political...
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