The political role of institutional investors
Matilde Bombardini, Professor
Business, Haas School
Applications for Fall 2024 are closed for this project.
Abstract Campaign finance laws aim to limit an individual's influence over the political process. We show that corporate ownership may be an important mechanism by which institutional investors circumvent such constraints and amplify their influence. Using data on the political giving and ownership of all 13-F investors between 1980 and 2018, we show that the probability that a firm's Political Action Committee (PAC) donates to a politician supported by an investor's PAC nearly doubles after the investor acquires a large stake, and that it increases five-fold when the investor obtains a board seat. This increase in similarity of political giving coincides with the election cycle the acquisition takes place in, and is not driven by selection into specific politically strategic acquisitions, as convergence in political behavior is observed even for exogenously determined acquisitions caused by stock index inclusions. The relationship is stronger for private funds, and those with high partisanship, suggesting the relationship is driven by investor preferences rather than strategic concerns. Finally, we show that portfolio firms' PAC expenditure experiences a relatively large shift at the acquisition date relative to past giving, whereas no such pattern is observed for institutional investors. We argue that these findings are best explained by investors influencing portfolio firm giving, suggesting that PAC giving may be another means by which influential shareholders impact corporate decision-making, in a manner that amplifies investors' political voice.
Role: We need help with text data matching since we are working with unstandardized names of institutional investors and firms in general. Other data handling tasks like data cleaning, creating tables and graphs are needed.
Qualifications: I work in Stata, but knowledge of any other software, like Python or R is fine as long as the task is achieved. Previous experience is a plus, but not necessary. Motivation and interest in the topic is essential!
Hours: 6-8 hrs