Political polarization and corporate political advocacy

Abstract

This paper examines the motivations and financial consequences of corporate political advocacy by examining the pause and subsequent resumption of corporate political donations following the US Capitol riots. Firms operating in a politically polarized environment were more likely to make these announcements, regardless of firm-level political risks. The announcement returns are negative (positive) for firms exposed to high polarization and political risks (high polarization and low political risks). Store footfalls, sales, gross margins, and profitability increase for both these groups. However, firms facing high polarization and political risks are more likely to resume PAC donations within a year of the Capitol riots.