Policy and oversight of corporate political activities and the cost of equity capital

Christofer Adrian, Mukesh Garg, Anh Viet Pham, Soon-Yeow Phang and Cameron Truong

Journal of Contemporary Accounting and Economics, 2022, vol. 18, issue 2

Abstract: This paper investigates the effect of voluntary adoption and disclosure of policies/oversight of corporate political activities/spending on the cost of equity capital for S&P 500 firms over the period 2015–2018. Using the CPA-Zicklin Index to measure the level of policies, oversight, and disclosure of corporate political activities, we find that firms with a greater level of policies and oversight enjoy a lower cost of equity capital. We also document that a higher index is associated with higher stock liquidity. The negative relation is more pronounced among firms with higher exposure to political risk and firms with higher dependence on government spending. We also find that a firm’s information environment plays an important role in moderating the relation between policies and oversight of corporate political activities and the cost of equity capital. Our findings suggest that voluntary adoption and disclosure of policies and oversight mitigates risks and uncertainties related to firms’ political activities, thereby reducing information asymmetry and the cost of equity capital.

Keywords: Corporate political activity; Cost of equity capital; Policies and oversight; Political spending; Voluntary disclosure (search for similar items in EconPapers)
JEL-codes: G30 G32 G38 M38 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:18:y:2022:i:2:s1815566922000091

DOI: 10.1016/j.jcae.2022.100314

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