In a recently released report, HLS Professor John C Coates and Taylor Lincoln, research director of Public Citizen’s Congress Watch division, provide evidence that publicly held companies that disclose their electoral spending are more valuable than the politically active companies that fail to disclose their donors.
Their report, “Fulfilling Kennedy’s Promise: Why the SEC Should Mandate Disclosure of Corporate Political Activity,” focuses on the situation created by the Supreme Court’s January 2010 Citizens United decision to allow corporations to donate unlimited sums of money to political parties to influence elections. According to the authors, the decision by the Supreme Court was based on the rationale that corporations would fully disclose their expenditures and shareholders would police the wisdom of such spending. Yet in 2010, less than half of the $266 million dollars spent by corporations on elections have been disclosed. The report concludes that the Securities and Exchange Commission should require corporations to disclose their political activities.
In a September 6th op-ed for the Washington Post, ‘Fulfilling the promise of Citizens United,’ Coates and Taylor argue that contrary to common belief, disclosure may actually benefit corporations and shareholders. They write, “We analyzed market valuations of 80 companies in the Standard & Poor’s 500 that have policies calling for disclosure of electioneering activities. In particular, we compared the price-to-book ratios of those companies with other S&P 500 companies in the same industries. After controlling for size, leverage, research and development, growth and political activity, we found that companies with disclosure policies had a 7.5 percent higher industry-adjusted price-to-book ratio than other firms.”
“Given data limitations, we cannot claim disclosure policies cause higher price-to-book ratios, only that companies with pro-disclosure policies are generally more valuable. But our data, which are from 2010, are inconsistent with claims that disclosure will harm corporations, and they are consistent with the idea that well-managed companies responsive to shareholder concerns tend to be valued more highly than other companies.”
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Coates is the John F. Cogan, Jr. Professor of Law and Economics. He is a frequent panelist and speaker on M&A, and a consultant to the SEC, law firms, mutual funds, hedge funds, and other participants in the M&A and capital markets.