Companies who lobby outperform companies who don’t lobby


The more a company lobbies, the better its publicly-traded shares perform. At least, that’s the conclusion of an academic research paper that analyzed share prices and corporate lobbying from 1999-2006.

“Lobbying firms significantly outperform non-lobbying firms,” write professors Matthew D. Hill, G. Wayne Kelly, G. Brandon Lockhart, and Robert A. Van Ness in a paper entitled “Determinants and Effects of Corporate Lobbying.” (the paper is not yet published). They also note that “Excess returns are directly associated with the number of years that firms lobby.”

So the more years a firm lobbies, the better it does. The professors’ statistical analyses led them to estimate that if a company lobbied for five years, its stock price would be 3.9% higher than if it had not lobbied at all. Which is a pretty remarkable return, when you think about it. And among the firms that lobby, those who spend more get an even better return.

They also find that, in particular, 2001, 2002, and 2005 were good years to be lobbying. The pay-off to lobbying was generally higher in those years.

Interestingly, though, only about 15% of publicly-traded firms in the United States spend any money on direct lobbying (though many do contribute to trade associations). This seems surprising given what seems like very high returns.

But there may be at least two reasons for this.

First is that lobbying successfully may require a serious commitment to playing the Washington game. The research suggests that to really get their money’s worth, companies have to to seriously invest for the long term. This may prevent smaller companies with limited cash flow from bothering to engage. “Lobbying appears not to be lucrative for all firms,” the paper concludes. “Still, results suggest that an increasing number of firms recognize the improved prospects that lobbying potentially provides.”

Second, it may be the case that not all companies would benefit from lobbying. Some industries and some companies may have more to gain from changes in policy than others, and thus they lobby the most aggressively. For certain companies in certain industries, there may simply be not much they can get out of Washington, and thus any lobbying would be wasted.

Still, the results are pretty compelling. And they are in line with more and more research showing that companies that lobby more tend to enjoy higher share prices. Last fall, for example, The Economist reported that a stock index of the 50 companies with the highest lobbying intensity (i.e. lobbying expenditures as a percentage of assets) had outperformed the S&P 500 by 11% a year since 2002, a pretty remarkable finding. I’ve also found that companies who lobby the most pay less in taxes (see here and here).

I’ll be writing about more other research into the pay-off to lobbying in the next few weeks. Safe to say that this study is not alone in finding that lobbying seems to pay off, and the companies that do it the most tend to get the best returns for the lobbying buck.