By James Kwak
Following up on yesterday’s column about corporate spending, I saw that John Coates (Harvard Law School) and Taylor Lincoln (Public Citizen) have published a study of the relationship between voluntary disclosure of political spending and company value (summary here). In short, after applying a bunch of controls, they find that companies with voluntary disclosure policies have price-to-book values that are 7.5 percent higher than companies that don’t.
Citing earlier research, they also say, “among the S&P 500 – which accounts for 75 percent of the market capitalization of publicly traded companies in the U.S. – firms active in politics, whether through company-controlled political action committees, registered lobbying, or both, had lower price/book ratios than industry peers that were not politically active.”
Of course, the causality could run either way, and Coates and Lincoln are not claiming that voluntary disclosure in itself makes a company more valuable. Disclosure policies make it less likely the CEO will blow company money on her pet political projects, and so it stands to reason that companies that are better governed in general—and hence more valuable—are more likely to have such policies. But it certainly implies that disclosure policies are not going to bankrupt the Great American Corporation.
A Constitutional Amendment?
In the wake of the Supreme Court’s decision in Citizens United to expand the ability of corporations* to pay for election-related communications, prominent law professor Lawrence Lessig is calling for a constitutional amendment to protect elections from the influence of money. The text of the proposed amendment isn’t done yet, but the goal is to protect Congress from the influence of money.
Lessig’s argument is simple: Congress is fundamentally (though, thanks to the Supreme Court, legally) corrupt, and most people think it is corrupt, which makes it hard for elected majorities to effect change and also undermines people’s faith in their government. Commenting on Citizens United, he said, “The surprise, and in my view, real cause for concern, however, was how little weight the Court gave to the central purpose of any fair election law: the purpose to protect the institutional integrity of the democratic process. That value seemed invisible to this Court, as if we didn’t now live in a democracy in which the vast majority has lost faith in their government.” Since the Court’s preferred stick for blocking campaign finance reform is the First Amendment, the only thing that can stop them is a new amendment.
Continue reading →
→ 124 Comments
Posted in Commentary
Tagged campaign finance, politics