November 6, 2006 — In anticipation to elections on Tuesday, a recent study by David Eccles School of Business finance professor, Michael Cooper, along with two other professors from University of Michigan and Virginia Polytechnic, shows companies giving to political campaigns see positive returns for their contributions. The study findings were summarized in a New York Times article on Sunday, November 5th.
The study examined whether companies were awarded for their positive involvement in the political system by measuring increases in company shareholder wealth. Part of the study included creating a comprehensive database of company contributions to political campaigns from 1979 to 2004. During that time, over 800,000 contributions were made by 1,930 companies. The results concluded that the more candidates a company supports, the higher are its stock price returns over the next year. In addition, the study also concluded that donations made to Democratic and House of Representative candidates had a larger positive affect.
Results also showed that companies who give political donations contribute to an average 73 candidates over any five year period, 53 of which go on to win their elections. If a company increased the number of candidates they donated to 96, it will experience an increase of annual returns of approximately six percent. Remarkably, the amount a company would have to donate to 96 political candidates is relatively small in comparison to the increase of a company’s shareholder value, according to the study.
Data in the study showed that Republican candidates typically receive higher total dollar contributions than Democrats and that Republicans receive donations from a larger number of companies. However, the findings show that contributions to Democrats result in stronger and more positive results for the company, meaning greater returns for their financial support and donations.
Despite regulation efforts to make the U.S. political system transparent, the findings in the study provide some alarming realities to the world of political campaigns. According to the State of Utah Elections Office, a company who spends $750 in a calendar year for political purposes must file a financial disclosure report with the Lt. Governor”s Office. A company can make unlimited donations for political purposes in Utah. “Overall, the study suggests that if the goal of the Federal Elections Committee and other governing bodies is equal and fair access to government, then more work is needed in the area of firm and candidate transparency,” according to Professor Cooper.