Does improved corporate political disclosure and accountability improve stock market and financial performance?

Abstract

The major research question in this paper is whether improved corporate political disclosure and accountability lead to improved stock market and financial performance. To explore this question, the paper first examines the corporate financial performance of companies ranked by the Center for Political Accountability (CPA), and finds no significant relationship between a company’s ranking on the CPA and its financial and stock market performance. The paper hypothesizes that the reason for the lack of a relationship is because the CPA ranking system is itself flawed, insofar as the criteria used to evaluate corporate political accountability exclude important elements of political activity and potential corruption. To test this hypothesis, the paper adds revised criteria that include important aspects of corporate political activities and accountability. Using these revised criteria, the authors then re-evaluate and re-rank the 196 corporations in the top two quintiles of the S&P 500. The results show that, so long as appropriate criteria are used to measure corporate political disclosure and accountability practices, there is indeed a positive relationship between corporate political disclosure and accountability practices and improved financial and stock market performance.