 The reputational costs of connections to controversial politicians: Evidence from political scandalsSusanne Preuss and Jacco L. Wielhouwer Journal of Business Finance & Accounting, 2024, vol. 51, issue 9-10, 2523-2560 Abstract: We use the exogenous nature of political scandals to test whether political connections in the form of campaign contributions expose firms to reputational risk. We hand‐collect a sample of 218 scandals of members of the U.S. Congress that occurred between 2000 and 2019 and estimate the abnormal returns around the day a scandal first appeared in the news. We find that connected firms and to a lesser extent other politically active firms experience value losses around corruption scandals involving firms or lobbyists. These losses increase in managers’ propensity to engage in unethical behavior. Moreover, we find that following such corruption scandals, media sources release negative news about connected firms, shareholders of connected firms are more likely to submit proposals on the disclosure of political contributions, and connected firms reduce political spending. Overall, our results suggest that losses around scandals are driven by reputation spillover and investors updating their beliefs about the risks of political contributions. Date: 2024 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:51:y:2024:i:9-10:p:2523-2560 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker More articles in Journal of Business Finance & Accounting from Wiley Blackwell |
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