Investor Reactions to Corporate Political Activity Disclosure: Role of Affect

• In Event: Doctoral Student Faculty Interchange II

Abstract

The study relies on affect-as-information theory to investigate whether the investors would react to new type of disclosure by relying on affect as opposed to factual information in order to estimate the investment potential of a company, or, alternatively, they would ignore corporate political activity disclosure transparency in their investment decisions. Corporations engage in the political process in various ways, such as making donations to certain political candidates through corporate political actions committees (PACs), making payments to lobbyists and contributing to various nonprofit organizations that may be involved in political activities. Certain types of corporate political donations do not need to be disclosed to the corporate stakeholders and public. Some corporations argue that additional corporate political disclosure is not necessary and investors currently have access to all the important information. Utilizing the laboratory experiment, the study finds evidence that corporate political activity disclosure transparency influences nonprofessional investors’ estimates of the investment potential. The findings suggest that corporations that chose to engage in the political process have to consider the informational needs of the broader range of stakeholders, as well as the high reputational and economic risk associated with the lack of corporate political disclosure transparency.

Author

• Natalia Ardasheva, University of Central Florida