Many firms and industry groups engage in lobbying efforts in an effort to achieve favorable regulatory outcomes. Economists have studied how these lobbying efforts impact the value of firms that lobby and have found mixed results. Some scholars have found that politically connected firms experience lower productivity as a result of their lobbying efforts. Others have found that lobbying can increase a firm’s value.
This research examines the effect of political activity on a firm’s value by analyzing the impact of a policy change that increased public disclosure requirements associated with lobbying. In 2007, Congress passed the Honest Leadership and Open Government (HLOG) Act to close loopholes left by previous legislation. The study’s authors use the Act as a negative shock to the effectiveness of lobbying to examine how the stock prices of firms that lobby were impacted surrounding passage of the legislation.
The authors find that the stock prices of firms that spend more on lobbying experienced a larger decline in response to the HLOG Act than firms that spent less on lobbying. These findings indicate that political engagement can influence firm value and that legislative attempts to reduce lobbying can have real impacts on financial markets.