Risky Business: Does Disclosure and Shareholder Approval of Corporate Political Contributions Affect Stock Volatility and Value?

We utilize a quasi-natural experiment to examine whether mandating greater disclosure and shareholder approval of political contributions reduces risk and increases firm value. In particular, we examine the Neill Committee Report (NCR), which led to the passage of the United Kingdom’s Political Parties, Elections, and Referendums Act 2000 (PPERA). The NCR recommended, and PPERA put into law, stronger disclosure and mandated shareholder approval of political contributions. Using a differences-in-differences methodology, we find that after the NCR’s release, politically active firms saw an increase in risk, as proxied by stock return volatility and a decrease in firm value, as proxied by Tobin’s Q. These results present a challenge to arguments for mandating greater disclosure and shareholder oversight of corporate political activities.