Companies see up to 700% return on political investments

The COVID-19 pandemic introduced uncertainty, fear and an unparalleled economic shock, resulting in the most extensive government stimulus package — totaling $2.9 trillion — in U.S. history. 

According to a new study, those stimulus checks more often went to the corporations that engaged in politics the most. 

Adam Olson, PhD, one of the study’s co-authors and professor of accounting at the University of Cincinnati’s Carl H. Lindner College of Business, said that the data shows it “definitely benefits companies to get involved with politicians.” 

The study, “The effect of political connections on COVID-19 stimulus,” was published in the journal of Accounting, Organizations and Society. It looked at over a thousand corporations’ donations to political action committees, or PACs, and lobbyists from 2017 to 2020, and the dollar amount of COVID-19 stimulus checks those corporations received.

The study was conducted in collaboration with Columbia University’s Shiva Rajgopal and Brigham Young University’s John Barrick. Using the stimulus checks the government began distributing in 2020, the team quantified just how much the country’s biggest corporations benefitted from being the biggest political donors and lobbyists. 

“Prior research has never been able to measure the result of contributions so directly,” Olson said. “This was a nice, clean setting where we could do that.” 

The direct distribution of money from the government on such a scale was unprecedented. He also said that since the delivery of the pandemic relief checks was so fast, there was less oversight to ensure funds were distributed fairly. 

The results showed what economists had often estimated, but not quantified, before: Corporations can see large returns when they engage in political activity. These benefits are greater when corporate political activity targets specific policymakers or agencies responsible for fund disbursement.

But Olson said the greatest shock was the sheer size of the returns seen with PAC donations in particular.

“We found that sometimes for each dollar they spent in PAC contributions, companies got over seven dollars back in benefits,” Olson explained. “That’s a seven hundred percent investment return.”

Olson did note that these gains are not limitless. He said that it can be tricky for companies to lobby from an angle that is too specific because regulatory changes that benefit one company often also benefit its largest competitors. 

“There usually isn’'t a specific enough investment these corporate entities see they can make politically to be able to get those types of returns all the time,” he said.

Tracking tricky data

There are a handful of factors that make it difficult to track corporate political contributions. First of all, companies do not have to directly disclose their political activity, requiring interested parties to comb through millions of PAC contributions and payments to lobbyists. They can also further cloak their political activity by acting through a trade association. 

“They give money to the trade association and then have some control over where that gets sent,” he explained. He used the example of a real estate company contributing to a trade association of realtors so that the association lobbies for policies that benefit the company. 

The difference with this dataset was that the direct distribution of the stimulus checks showed possible quid pro quo setups in some of these PAC donations. 

“Because the money was just being handed out as cash and because it came about so suddenly, it gives us much more confidence that these relationships are driving this,” Olson argued. “It’s that suddenness that makes it much clearer and helps rule out alternative explanations involving unrelated factors.” 

He also said that the website opensecrets.org was instrumental in tracking down some of these corporate political activities.

Full disclosure

Cleaner, more reliable data in the future can give stronger support for making changes in PAC donation laws. He hopes this research leads to policies that focus on disclosing what political activity companies get involved with. 

According to Olson, the majority of companies don’t disclose what they spend politically. “We really don’t know what they’re doing. It’s kind of just a big black box,” he said. “We’re trying to kind of open that up.”

And Olson said a better understanding of the motivations behind company contributions can help citizens better understand the inner workings of American politics. 

“More transparency would be a good thing for investors, thinking about it from a business perspective. But it can also be good for society as a whole,” he said. “People like more disclosures and transparency when we’re dealing with both the government and large companies.”

Olson hopes his research will lead to better conversations and better policies going forward. 

Read the full study.