Managerial Ability, Political Risk, and Political Spending Disclosure

• In Event: Management Accounting & Nonprofit

Abstract

This study uses a sample of 1,699 firm-year observations of S&P 500 companies between 2014
to 2019 to investigate whether managerial ability and political risk affect firms’ political
spending disclosure. Our results show that firms with high ability managers generally disclose
more political spending information. The relation between managerial ability and political
spending disclosure is robust to additional tests addressing endogeneity concerns. Moreover, we
find that firms facing high political risk voluntarily disclose more political spending information.
Our cross-sectional analysis suggests that the positive association between political risk and
political spending disclosure is more pronounced in the subsample of firms in the bottom quartile
of managerial ability. Further analysis reports that the positive impact of managerial ability on
political spending disclosure is weaker when CEOs get older and is more pronounced for firms
headquartered in Democratic states. Our results remain robust to alternative measures of
managerial ability and political risk.

Authors

• Huilan Zhang, Penn State University - Altoona

• Jing Wang, Cal State University - Bakersfield