Why Do Corporate PACs Give so Little Money to Politicians? Joint with Lev Lvovskiy

Abstract:

We use the logic of classical portfolio choice theory to rationalize seemingly contradicting patterns of political contributions in the United States. In particular, large firm-level benefits from political participation can be trivial for individual shareholders holding a small fraction of the firm's equity. Since the ultimate source of corporate political contributions are employees and shareholders, portfolio theory can help explain why corporations contribute so little relative to the large potential benefits that political contributions can provide. Furthermore, the portfolio choice approach helps us uncover and document new facts about political contributions that would not be apparent otherwise.