Press [ + ] to see article abstract, along with links to the article
Skaife, Hollis A., and Timothy Werner. Forthcoming (2019). “Changes in Firms’ Political Investment Opportunities, Managerial Accountability, and Reputational Risk.” Accepted for publication at Journal of Business Ethics.
We use the U.S. Supreme Court’s decision in Citizens United v. Federal Election Commission to assess the reputational risks created by political investment opportunities that allow managers to spend unlimited and potentially undisclosed firm resources on independent political expenditures. This new opportunity raises important ethical questions, as it is difficult, and perhaps impossible, under current law for shareholders to hold managers accountable for this investment choice and the reputational risks it entails. Using firms’ known political activity as a proxy for managers’ likely future use of independent political expenditures, we examine how market participants reacted to Citizens United, conditional on this prior activity and corporate governance attributes related to the concentration of decision rights in senior management and blockholders. The results of our analyses document that firms with both a high level of known political activity and CEO-chairperson of the board duality experienced negative abnormal returns in reaction to Citizens United. In contrast, firms with concentrated ownership experienced positive abnormal returns; however, as known political activity increased, investors discounted the benefits of concentrated ownership. These findings suggest that investors expect this expansion of firms’ political investment opportunities to amplify principal-agent problems inherent in corporate political activity. Additionally, our findings provide evidence for those deliberating the mandatory disclosure of firms’ investments in politics as a means of increasing managerial accountability to both shareholders and the public. [ Accepted version ]
Werner, Timothy. 2017. “Investor Reaction to Covert Corporate Political Activity.” Strategic Management Journal 38 (12): 2424–2443. Winner of the Best Proposal with Practical Implications Award of the Stakeholder Strategy Interest Group at the 2016 Annual Meeting of the Strategic Management Society.
Citizens United v. Federal Election Commission and subsequent developments created a covert channel for firms to allocate resources from corporate treasuries to political activity. Through the use of a financial market event study of an accidental disclosure of firms' contributions to a Republican nonprofit organization, I examine investors' reactions to covert investment in independent political expenditures. I find that, on average, contributing firms experienced positive abnormal returns around the disclosure event and that these abnormal returns were more positive for firms in heavily regulated industries as well as those previously making campaign contributions to candidates. However, firms that recently faced a shareholder resolution on political spending disclosure experienced negative abnormal returns, suggesting that the controversial nature of covert activity moderated investors' reactions. [ Publisher | SSRN ]
Richter, Brian Kelleher, and Timothy Werner. 2017. “Campaign Contributions from Corporate Executives in Lieu of Political Action Committees.” Journal of Law, Economics, & Organization 33 (3): 443–474.
Limiting corporate participation in electoral politics is a central focus of campaign finance reform. In this spirit, individual candidates for office have prohibited corporate-linked political action committees (PACs) from contributing to their campaigns. On the surface, such no-PAC policies might seem like an effective way to keep corporate-linked monies out of electoral politics; however, they ignore the reality that corporate monies have a variety of ways to find their way into candidates’ campaign accounts. We leverage these candidate-specific refusals to accept PAC monies to uncover concomitant spikes in the pattern of corporate executives’ personal campaign contributions that are most pronounced for executives at firms with active PACs which contributed to the candidates in question. These results come from a newly constructed dataset that includes all CEO–firm–candidate contribution pairs for active S&P500 firms over an 18-year period and suggests that CEOs strategically act in lieu of their firms’ linked PACs. [ Publisher ]
McDonnell, Mary-Hunter, and Timothy Werner. 2016. “Blacklisted Businesses: Social Activists' Challenges and the Disruption of Corporate Political Activity.” Administrative Science Quarterly 61 (4): 584–620. Winner of the Best Conference Paper Prize at the 2014 Annual Meeting of the Strategic Management Society.
This paper explores whether and how social activists’ challenges affect politicians’ willingness to associate with targeted firms. We study the effect of public protest on corporate political activity using a unique database that allows us to analyze empirically the impact of social movement boycotts on three proxies for associations with political stakeholders: the proportion of campaign contributions that are rejected, the number of times a firm is invited to give testimony in congressional hearings, and the number of government procurement contracts awarded to a firm. We show that boycotts lead to significant increases in the proportion of refunded contributions, as well as decreases in invited congressional appearances and awarded government contracts. These results highlight the importance of considering how a firm’s sociopolitical environment shapes the receptivity of critical non-market stakeholders. We supplement this analysis by drawing from social movement theory to extrapolate and test three key mechanisms that moderate the extent to which activists’ challenges effectively disrupt corporate political activity: the media attention a boycott attracts, the political salience of the contested issue, and the status of the targeted firm. [ Publisher ]
Werner, Timothy. 2015. “Gaining Access by Doing Good: The Effect of Sociopolitical Reputation on Firm Participation in Public Policymaking.” Management Science 61 (8): 1989–2011.
This paper examines the role of firms' sociopolitical reputations, as proxied by their perceived engagement in socially responsible practices, in public policy makers' decisions to grant access in the policy-making process. I argue that policy makers' dependencies, motivations, and decision-making processes lead them to evaluate firms by using sociopolitical reputation as a differentiating heuristic. I hypothesize that firms that construct stronger sociopolitical reputations will be granted greater access and that firms' existing political activity and policy makers' partisanship will moderate this relationship. I test these hypotheses using an 11-year panel on congressional testimony, reputation, and political and financial characteristics for the S&P 500 and find support for all three. These findings support the existence of a sociopolitical dimension to firms' reputations that affects how public policy makers evaluate firms, demonstrating that corporate social responsibility pays political benefits. [ Publisher ]
Werner, Timothy, and John J. Coleman. 2015. “Citizens United, Independent Expenditures, and Agency Costs: Reexamining the Political Economy of State Antitakeover Statutes.” Journal of Law, Economics, and Organization 31 (1): 127–159.
We test the agency theory of corporate political activity by examining the association between the legality of independent expenditures and antitakeover lawmaking in the US states. Exploiting changes in state law regarding the use of corporate independent expenditures in the pre-Citizens United era, we estimate that a state is more likely to pass antitakeover statutes that entrench management when firms are allowed to make independent expenditures. We also find that this relationship is conditional on the competitiveness of a state’s electoral environment, suggesting that the threat of independent expenditures may move vulnerable legislators’ votes on less salient issues, such as corporate governance. These findings are robust to competing public interest and political economy explanations for antitakeover lawmaking, and they reveal that allowing independent expenditures may create additional agency costs for owners through public policy. Finally, these results strongly challenge the claim that state-level antitakeover laws are exogenous to firms’ activities. [ Publisher | SSRN ]
Werner, Timothy. 2011. “The Sound, the Fury, and the Non-event: Business Power and Market Reactions to the Citizens United Decision.” American Politics Research 39 (1): 118–41.
In the wake of the U.S. Supreme Court decision in Citizens United v. Federal Election Commission , supporters of campaign finance reform argued that American politics would soon be awash in corporate cash and that public policy outcomes would reflect the desires of big business. Using event study methodology to isolate the effect of Citizens United on firms’ stock prices, this article finds that the financial markets did not share this view. Rather, key events in the case did not significantly affect the share prices of those large firms heavily engaged in and sensitive to politics, suggesting that investors expected the decision to have no effect on political and policy outcomes of concern to corporate America. [ Publisher ]
Werner, Timothy. 2009. “Congressmen of the Silent South: The Persistence of Southern Racial Liberals, 1949–1964.” Journal of Politics 71 (1): 70–81.
Using fuzzy set qualitative comparative analysis, this paper investigates the characteristics of white Southern constituencies that reelected racial liberals to the U.S. House in the period between the 1948 Democratic Convention and the passage of the Voting Rights Act. In doing so, it tests theories of Southern politics and the electoral connection. Further, it also addresses several methodological issues regarding inferences made from comparative–historical research. Ultimately, it reveals that racial liberals from the Peripheral South and the cities of the Deep South were able to establish bonds between themselves and their constituents that were sufficient to win reelection. [ Publisher | JSTOR ]