Fulfilling Kennedy’s Promise: Why the SEC Should Mandate Disclosure of Corporate Political Activity

Abstract

The Supreme Court’s Citizens United decision to let corporations spend unlimited sums in federal elections was premised on a pair of promises: Corporations would disclose expenditures, and shareholders would police such spending. Those promises remain unfulfilled: of $266 million spent by outside groups in 2010, half was spent by groups that revealed nothing about their funders, double the total spending by outside groups in 2006. The best chance to fulfill those promises may now rest with the SEC. Contrary to consensus views, SEC action may benefit owners of affected firms. We estimate industry-adjusted price-to-book ratios of 80 companies in the S&P 500 that have policies calling for disclosure of electioneering. After controlling for size, leverage, research and development, growth and political activity, we find disclosing companies had 7.5 percent higher ratios than other S&P 500 companies in 2010. Our data are inconsistent with claims that disclosure is harmful, and are consistent with the idea that well-managed companies responsive to shareholder concerns tend to be valued more highly than other companies.