How Do Investors React to Corporate Political Spending Disclosure?

• In Event: Investor Judgement and Decision Making

Abstract

In the ongoing debate over whether public companies should be required to disclose their political spending, one frequent argument against requiring disclosure is that investors do not consider political spending information relevant for their decisions. However, I predict and find in my experiment that investors whose political identities are aligned with a company’s political spending assess the company as more attractive and invest more in the company than investors whose political identities are misaligned with the political spending. Interestingly, this effect is primarily driven by the negative reactions of misaligned investors. The attractiveness assessments and investment amounts of misaligned investors are significantly lower than those of investors in a control condition with no political spending disclosure, but those of aligned investors are not significantly different from those in the control condition. My results also provide evidence that investors use political spending information consciously rather than because of a subconscious bias. These findings have implications for regulators because, contrary to the argument that political spending information is irrelevant to investors, my results suggest that investors consciously use political spending information in their investment decisions. In addition, my results extend existing theory in the finance literature that suggests investors have tastes for assets that are independent of financial considerations.

Author

• Jordan Michael Bable, University of Waterloo