With the Presidential election so close and days away, a new University of California study could have an impact.
Imagine finding a relationship between company managers’ political contributions, voluntary disclosure and increased shareholder value?
The study by the University of California Davis’s research team led by Paul Griffin ‘shows positive results by documenting a significant association between corporate political contributions and excess stock return’. Basically, Democratic managers of companies that contribute to Democratic political campaigns that voluntarily disclose their CSR activities enjoy a 4.5 percent positive mean excess return over a three-month period. The researchers did not find the same relationship among Republican managers.
The study did not include political contributions by the companies themselves but rather individual managers registered as either Democratic or Republican. Since the Citizen United case allows for unlimited contributions by corporations, the Federal election commission is not organized enough to provide adequate information to gather results. Consequently, Griffin and his team concentrated on individual managers.
Since the results of their last study on Voluntary Disclosure for greenhouse gas [GHG] emissions posited that companies that voluntarily disclose their GHG enjoy higher stock value, the University requested greater access to our archives to examine other considerations related to disclosure.
Number of Disclosures vs. Investor Interest
We made our entire archive database available to the researchers from the period between 2000 and 2011 and included 14,561 date stamped releases and matched these releases to companies listed in the CRSP/Compustat merged database.
Some of the interesting findings seem counter intuitive. For example, Dow Chemical and Alcoa demonstrate an inordinate amount of disclosures and the intensity and number of disclosures seem to make the companies more interesting to investors and media thereby attracting more attention. Other companies seem to hide from disclosure and do not enjoy the benefits aforementioned.
Through a variety of analysis explained thoroughly in the study, the researchers also find that ‘essentially none of the company individual’ CSR voluntary disclosure decisions produce a significant adverse effect on stock price.’ Voluntary disclosure increases stock value and does not decrease stock value.
The Political Repurcussions
The irony of the study from a partisan or political point of view seems abstract.
Republicans reject additional regulations and required disclosure as government interference; while Democrats seem to want more regulations and disclosure. Yet, these findings show that Democrats disclose more information and actually helps improve stock price. Does this mean instead of more regulations we need more voluntary disclosure? Especially since voluntary disclosure increases value?
The data obtained from the Federal Election Commission limited the scope of individual contributors to titles of ‘Executive’ or ‘Manager’ suggesting a connection between a company’s strategic initiatives and the individuals’ managers’ point of view.
The data in the Tables and Panels show some interesting results when it comes to volume of contributions by companies.
For example, 4,547 individual contributions from AT&T produced an overall $707,385 to federal committees in the 2007-2008 elections cycle. AT&T was certainly interested in that election and over twice as much was contributed to Democrats.
The researchers admit there are many other variables under consideration and attempt to mitigate those variables using a variety of regression analysis. There are 16 variables used, 63 references, eight figures and tables. The researchers will be submitting the study for peer group reviews over the next few months and we will continue to report on their progress.
Finally, it seems that the intensity of voluntary disclosure attracts positive attention to a variety of stakeholders, especially investors and media interested in CSR, and increases shareholder value. And Democrats find it more useful to disclose their activities and are, therefore, rewarded.
Now, let's see if the campaigns find the results useful enough to engage in a dialogue in the next few days. It’s a close election and every bit helps.