Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 21, 2020 erstellt
Beschreibung:
Motivated by the empirical evidence I uncover on the connection between firms' lobbying efforts and their risk-return characteristics, I offer a theoretical analysis of the link between the real and financial effects of corporate lobbying. Firms lobby to maximise their value, but political competition affects the intra-industry dynamics of risk. This inflates firms' cost of capital, and reduces firms' incentives to invest in research and development. This link is important because empirically firms spending intensively on lobbying also engage more in innovative activities. I document an annual 5%–8% “lobbying premium” for the stock returns of top-lobbying firms. I interpret this premium as compensating investors for government risk, and find strong supporting evidence. I perform two counterfactual experiments to analyze the real investment distortions induced by the lobbying premium. The model reveals that the lobbying premium is contractionary, and the effect is particularly pronounced in less competitive industries