Is lobbying profitable for business?

by on January 12, 2018 at 1:19 am in Current Affairs, Data Source, Economics, Political Science, Uncategorized | Permalink

Maybe not, as I argue in my latest Bloomberg column:

The numbers instead indicate that lobbying hurts the underlying capital values of the corporations. Lobbying doesn’t increase the chance that favored bills are passed by Congress, and it isn’t associated with the company receiving more government contracts.

Those are the key results from a new study by Zhiyan Cao, Guy D. Fernando, Arindam Tripathy and Arun Upadhyay, published in the Journal of Corporate Finance and considering 1,500 S&P companies over the period 1998 to 2016. Neither spending money at all on lobbying nor spending more money on lobbying over those years seem to help companies, and for that matter contributions to political action committees don’t work either.


If corporate lobbying is an unprofitable use of money, why does it happen? One possibility is that corporate leaders are using company resources to indulge their own ideological preferences. Other researchers have found that companies with weaker governance and more entrenched management are those more likely to spend on lobbying. This study finds that lobbying expenditures are higher when the percentage of CEO perks is higher and when the board of the company is larger.

It’s also possible lobbyists are ripping off companies with slick sales pitches, or that incompetent CEOs are spending money on lobbying so they seem to be doing something constructive.

Do read the whole thing, I also consider under what kind of hypothesis the lobbying actually might be paying off.

1 Axa January 12, 2018 at 1:31 am

It seems too spenders are not for-profit corporations. Alphabet and Boeing are well below the realtor association.


2 clockwork_prior January 12, 2018 at 1:40 am

Realtors have a deep and abiding faith in the value of greasing every part of the American political process, and can be quite innovative about it. Just ask the Clintons about Whitewater.


3 clockwork_prior January 12, 2018 at 1:37 am

Considering that there are generally lobbyists on both sides of any political issue, the way the column is framed is roughly the equivalent of saying that paying for lawyers hurts the underlying capital values of the corporations. Paying for lawyers don’t increase or decrease the chance of winning or losing in court when the other side also has lawyers, after all. But not paying for lawyers distinctly increases the chances of losing against a side that is employing lawyers.

And using 1998 is particularly instructive, as the high tech/dot com companies were famous for not caring about lobbying. Until these two court cases played out to the end – and


4 Matt January 12, 2018 at 5:50 am

This is absolutely basic, so I’m surprised to not see it discussed here. Is it discussed in the article? If not, we should just throw it away.


5 Baphomet January 12, 2018 at 7:02 am

Indeed, this paper (which I have read) should not have been accepted. It shows the dangers of doing “empirical” work without any theory (or thinking of any kind).


6 TMC January 12, 2018 at 8:43 am

Microsoft was the first thing I thought about. Clinton administration basically threatened their business unless they started donating.


7 Troll Me January 12, 2018 at 1:17 pm

That was before Apple was established as a sure thing for an alternative operating system. There was no decent freeware at that time for basic productivity and Microsoft looked as though it desired monopoly on both operating systems and non-specialist office productivity software.


8 Elias January 14, 2018 at 10:42 pm

While there’s always two sides to a political issue, there’s definitely not an organized opposition on both sides of every political issue. Suppose the steel workers union is lobbying for steel tariffs. There’s a very concentrated effort on one side of this issue (steel workers union), and a very disorganized majority on the other side (the rest of the population). There’s a great asymmetry between the benefits of a tariff to the union on one hand (huge and palatable), and the costs of a tariff to the rest of the population (small and hard to spot). So you would imagine lobbyists working on behalf of steel worker unions having a big advantage over lobbyists representing the other side.


9 clockwork_prior January 12, 2018 at 1:38 am
10 Simian January 12, 2018 at 1:44 am

The full article is gated, so I can’t look at the methodology – but prior academic research shows that lobbying is a positive ROI activity for companies overall, and that it leads to better stock returns.
“We find that on average, lobbying is positively related to accounting and market measures of financial performance. These results are robust across a number of empirical specifications. We also report market performance evidence using a portfolio approach. We find that portfolios of firms with the highest lobbying intensities significantly outperform their benchmarks in the three years following portfolio formation.”
“Our results suggest that although the association between abnormal stock returns and total lobbying expenditures is generally positive and significant, the returns to lobbying vary substantially depending on the issue being lobbied. While investors expect lobbying on tax-, defense-, trade-, and federal budget-related issues to generate significant economic benefits for firms, they expect the returns to environment-related lobbying to actually decrease shareholder value… Overall, our research suggests that corporate lobbying activities represent strategic political investments that generate future economic benefits, not agency problems as asserted by some prior studies.”


11 clockwork_prior January 12, 2018 at 2:34 am

It certainly used to be a tenet of faith among those publicly associated with public choice economics.

For example –


12 MelB January 12, 2018 at 7:57 am

….but but a distinguished economics professor would not cherry-pick a Bull$hit study… just because it supported his own bias on the topic


13 TMC January 12, 2018 at 8:45 am

You are confusing this post with a peer reviewed paper.


14 clockwork_prior January 12, 2018 at 8:51 am

And confusing Prof. Tabarrok with Prof. Cowen, quite possibly.


15 clockwork_prior January 12, 2018 at 2:30 am

‘One possibility, beyond the scope of this column, is that businesses take a direct hand in writing legislation and supplying congressional offices with legislation, and thus benefit from politics through those channels.’

So coy. Smart companies donate to public policy institutes, which then have direct input in writing legislation and supplying congressional offices with legislation. Plausible deniability is an important corporate asset, after all.

‘Another possibility is that businesses succeed in influencing government through trade associations’ would seem to suggest that ‘The broader truth stands that the U.S. is not in general a country run by business interests’ is not necessarily all that accurate.


16 GMC January 12, 2018 at 3:12 am

It’s a Red Queen.


17 ChrisA January 12, 2018 at 5:24 am

Good point. Plus I would guess that lobbying also provides valuable intelligence about which way things are going politically. If you are finding your arguments being heavily opposed by law makers then perhaps that can provide valuable information about changing your strategy.


18 Jeff R January 12, 2018 at 7:42 am

It’s a Tullock Auction.


19 Oblong January 12, 2018 at 3:15 am

I wouldn’t say that it’s just senior management indulging ideology. Often it’s senior management using corporate funds to promote their own personal status in the political and social arena, not necessarily for the benefit of the company


20 clockwork_prior January 12, 2018 at 4:19 am

‘senior management indulging ideology’

For privately owned companies, it most certainly can be, if one exchanges ‘senior management’ with ‘owner and owner picked senior management.’

It has been fascinating to watch someone’s ideology cut its jib to the requirements of time and place. Or just possibly, to obscure what was clear a decade ago with a new set of alternatives to make things less clear.


21 Cyrus January 12, 2018 at 3:37 am

Lobbying against unfavorable legislation, or to maintain a favorable status quo, is an activity that depending on method might not impact the question does lobbying increase the likelihood of favorable legislation.


22 Bob January 12, 2018 at 11:46 am

Exactly. A good lobbyist isn’t necessarily going to get major favorable legislation passed. An effective lobbyist is more likely to kill (or delay) unfavorable legislation; alter legislation through carve-outs, exceptions, or other craftiness; or find ways to protect his client through regulatory or judicial interpretation, not to mention waging PR battles to sway the public.


23 Tim Worstall January 12, 2018 at 4:29 am

My view of lobbying is that it’s a tax levied by the political process. Start making the sort of money that politicians notice and they’ll work out a way to get their tithe. No, not taxes, but some amount which will be fed into the political process itself.

X software company becomes successful.

Politicians* notice. “We must regulate X software!”

X software starts lobbying.

*Politicians here means the entire swamp, not just those elected.


24 Transnational Pants Machine January 12, 2018 at 8:42 am

Came here to say this, and more.

Tyler and the rest of the left will tell you all day that corporations are evil for “buying votes” —- while they completely exonerate the Congress who actually HAS THE POWER and is selling it to the highest bidder.

…. “Congress can’t do anything! They’ve been bought and paid for!!!”

And “selling votes” isn’t even the right phrase. Congress is simply extorting funds from the businesses who are affected by the votes.


25 Borjigid January 12, 2018 at 5:15 am

Right. Corporate lobbying had nothing to do with the recent enormous, and enormously unpopular, corporate tax cut.


26 Bob from Ohio January 12, 2018 at 10:21 am

GOP cutting taxes does not depend on lobbying. Its a bedrock political view.


27 Borjigid January 12, 2018 at 11:35 am

Agreed, but what about the particular form that those tax cuts took?


28 Vivian Darkbloom January 12, 2018 at 5:54 am

I’d like to see here a definition of “lobbying”. It seems like the common (mis) perception is that “lobbying” is everywhere and always nefarious and has nothing to do with the proper functioning of democracy.

Take, for example, section 553 of the Administrative Procedures Act. Most federal regulations need to published in advance and those interested and potentially effected given a chance to comment. Should our rulemakers be acting in a vacuum? See, for example, the brief introduction here:

And, examples of public comments in a representative area of federal regulations– tax law:

Those types of comments are much more informed and constructive than 99.9 percent of the contents of this blog.


29 Troll Me January 12, 2018 at 1:26 pm

Good policy requires diverse voices at the table.

These voices could be referred to as lobbyists.

The problem is when only the wealthiest 5% or wealthiest 0.01% can afford a seat at the table. Or when collective interests are not represented.


30 Vivian Darkbloom January 12, 2018 at 1:41 pm

An old professor of mine used to say, the class before an exam, “all you need to bring is a pen and knowledge”.

We’ll have to amend that here: Anyone with a pen, paper and knowledge (or perhaps today an internet connection) “can afford a seat at the table”.

I don’t know why you waste your time here and then complain you don’t have a “seat at the table”. If you had something worthwhile and constructive to say and submitted that to the appropriate venue, your voice would be heard and respected. The reason you don’t have a seat is that you don’t have anything constructive or intelligent to add (at least if prior comments here are any guide, and I think they are).


31 Troll Me January 12, 2018 at 1:57 pm

Sounds like you oppose having diverse voices at the table. On a post about paid lobbying at that. ha ha ha.

Ignoring that there are also ethical lobbyists, is it hard to understand what you said without thinking that you are either a paid lobbyist or hire paid lobbyists, and are also extremely aware of unethical dimensions of whatever has transpired.


32 Vivian Darkbloom January 12, 2018 at 2:24 pm

“Sounds like you oppose having diverse voices at the table.”

Not at all. I practically gave you a map and an invitation. There’s nothing at all preventing you from “lobbying” for whatever cause you want to support. Whining here isn’t going to accomplish anything.

I’m not a paid lobbyist and never have been.

33 Troll Me January 12, 2018 at 5:18 pm

Good policy requires diverse voices at the table.

Sometimes you even invite them instead of building highly diversified walls to prevent their entry. (Some people like to pretend that such things do not exist, because it allows to have a nicer belief about how the world is). For example, representatives of consumers, labour and also business should be actively welcomed to most relevant policy tables.

There are those who believe that any corporate interaction with policy is a priori corrupt. Which is wrong as an exclusive point of interest about corporations and policy. Corporations need to be represented at the table. As do consumers. And also workers.

34 rayward January 12, 2018 at 6:46 am

“One possibility is that corporate leaders are using company resources to indulge their own ideological preferences.” Why lobby Congress after the election when one can buy Congress during the election.


35 rayward January 12, 2018 at 7:19 am

One of the many reasons I admire Cowen is his appreciation of irony.


36 TMC January 12, 2018 at 8:51 am

“Why lobby Congress after the election when one can buy Congress during the election.”

Damn Clintons never stayed bought. More like you had to rent them. They were pretty sophisticated though, so maybe it was more like a subscription.


37 rayward January 12, 2018 at 10:08 am

Not a single reference to Citizens United in these comments. Why is that?


38 Careless January 12, 2018 at 10:50 am

So place your bets: does rayward not know what lobbying is, or does he not know what the Citizens United ruling did?


39 rayward January 12, 2018 at 12:16 pm

Reading is an acquired taste.


40 msgkings January 12, 2018 at 12:25 pm

When are you going to acquire it?

41 Thor January 13, 2018 at 12:12 am

Stop knocking Rayward now that he’s finally concise!

42 Evans_KY January 12, 2018 at 6:55 am

First deploy lobbyists to advocate. If that doesn’t work then shop for a think tank that will legitimize. In the meantime, lawyers dissect and identify points of attack. But don’t forget your best tools, super-PACS and the media. Commercials, op-eds, and talking heads.

Climate change, immigration, healthcare. All stalled or perverted in implementation. War. What is it good for?

I agree the obscene $$$ spent on this multi-pronged approach would be better spent on innovation. A lot of short-sighted companies see the status quo as profitable, so why change?


43 Bob from Ohio January 12, 2018 at 10:24 am

“Climate change, immigration, healthcare.”

Big business supports the liberal position on those issues.

Its grassroots GOP/conservatives who stopped the first two.


44 Troll Me January 12, 2018 at 1:33 pm

Consumer-faced multinationals support a “do something approach” on climate change because most of the rest of the world is relatively unexposed to the subject-specific brainwashing that has proliferated and been reinforced broadly among US audiences for some years.

The idea that no big businesses are involved in the propaganda, misinformation, confusion-sowing and quasi-brainwashing related to climate change questions is practically an insult to our intelligence.

However, I do not doubt that many grassroots COP/conservatives feel the way you do about it.


45 Art Deco January 12, 2018 at 4:48 pm

most of the rest of the world is relatively exposed to the subject-specific brainwashing that has proliferated and been reinforced broadly among foreign audiences for years



46 Troll Me January 12, 2018 at 5:23 pm

Photons are real. They have some physics properties too. Like, really fast and stuff.

Molecules are also real. They also have physics properties. Like, reflecting things different depending on wavelengths, etc.

That was maybe not in high school science in your day.

47 Ted Craig January 12, 2018 at 7:01 am

“Lobbying doesn’t increase the chance that favored bills are passed by Congress, and it isn’t associated with the company receiving more government contracts.”

It’s the bills that never come up for a vote that make lobbying worthwhile.


48 Bob from Ohio January 12, 2018 at 10:25 am

Its not bills at all, its the administrative and regulatory aspect of lobbying that make it worthwhile.


49 Bill January 12, 2018 at 7:29 am

Think about the phrase “$1.5 Trillion”

and ask

Do you think lobbying was worth it.


50 Ali Choudhury January 12, 2018 at 8:29 am

Microsoft thought it could ignore lobbying and ended up getting a good blistering from the Justice Department because of that. They learned their lesson.


51 Anonymous January 12, 2018 at 9:52 am

I am really confident that MS talked to the government about the usefulness of a monopoly OS with convenient backdoors, and the case was then settled quickly.


52 Troll Me January 12, 2018 at 1:36 pm

That was because they were going toward monopoly.

A lack of action in the USA would have led Europe, and probably many others, to take larger counteraction to protect against monopolistic exploitation of consumers in the other 95% of the world.

If the USA had not taken action then, very possibly the rest of the world would be using a different operating system by now, with 0 additional profits to Microsoft shareholders outside of those milked from US consumers.


53 Matthew Young January 12, 2018 at 8:51 am

All the low hanging fruit is gone now that Swamp interest charges are beyond 3% of the economy. The taxpayer has no do-re-me left.

If history is any guide, when the interest charges reach this high, lobbying is gone, the government shuts. At least that is how it has worked three times since our monetary change in 1973. We will probably sequester again, that always worked in the past to stop the shutdown.


54 derek January 12, 2018 at 9:26 am

Car dealerships? The whole model depends on legal restrictions.


55 jack January 12, 2018 at 9:36 am

Interesting article by Prof Cowen. Would be nice if Professor Cowen at least briefly commented on the methodological persuasiveness of this and the various articles he periodically cites to. It strikes me as a little odd that companies would spend money on lobbying if the activity were ineffective.


56 Bill January 12, 2018 at 9:42 am

Fred McChesney in his book Money for Nothing argues that corporate lobbying is a shakedown by politicians. Corporations spend money on lobbying to avoid political disfavor.


57 Mark Wylie January 12, 2018 at 10:34 am

I suspect that this is another issue, like that of campaign finance contributions, where it simply isn’t possible to reach definitive results by regression analysis, no matter how sophisticated, because the truly relevant outcome variables can’t be quantified. Yes, you can quantify whether legislation gets passed or not, but you can’t quantify the specific provisions, or the degree to which lobbying influences the specific provisions, because so much of what goes on in the actual process of creating legislation is unobservable.


58 collin January 12, 2018 at 10:37 am

I also consider under what kind of hypothesis the lobbying actually might be paying off.

I would file this under what are the alternatives. Consider lobbying by the coal industry during the Obama years and think about what could of happened versus reality. The true opportunity cost of not lobbying is not the current policy but what Obama could have moved the goalposts.


59 anon January 12, 2018 at 10:50 am

The First Amendment to the US Constitution:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Penn & Teller:

Michael Badnarik Bill of Rights Class


60 Troll Me January 12, 2018 at 1:39 pm

Billionaires are just as free to speak as the rest of us.

It doesn’t make it legal to buy an election.


61 Art Deco January 12, 2018 at 4:45 pm

The people trying to buy the Republican presidential nomination discovered that the Bush operatives made a pile of their cash and set it on fire. Scott Walker’s campaign imploded because he was listening to his (billionaire) patron and not to voters.


62 Troll Me January 12, 2018 at 5:26 pm

Yes, so instead the other billionaire with yet other billionaire supporters got the nomination.

Did you know that the #1 financial backer of Trump also gave Bannon $10 million to help start Brietbart?


63 Gabe January 12, 2018 at 11:47 am

Prisoner’s dilemma . . . As soon as one big corporation starts to lobby, its competitors feel as they need to do so as well in order to stay competitive. Perhaps if only one company lobbied it might be effective, but when every company does so it makes it unprofitable for everyone.


64 Elias January 14, 2018 at 11:01 pm

Such Nash equilibria are probably out there, but not all political interests have representation. Take corporate subsidies for example. The benefits of subsidies can be huge and obvious to specialized interests, while the costs of subsidies are small and dispersed among the rest of the economy. If sugar subsidies are a $3 net loss to you, and sugar subsidies are a $3B net gain to Big Sugar, who do you think is going to have a better representation?


65 john January 12, 2018 at 12:50 pm

The implication being that corporate decision-makers are simply foolish or (following the thinking of someone like Richard Wagner) the money spend for such activities has nothing to do with the lobbying outcome but is maximizing some other objective.

Seems like neither of these alternatives bode well for the view than markets — particularly the modern version where corporate plays really dominate the activity — have much to crow about in terms of efficiencies from the social welfare (D-S surplus view).


66 Troll Me January 12, 2018 at 1:06 pm

If 10% of executives are corrupt by giving away shareholder value as political donations due to political/ideological affiliation or beliefs, and another 10% of executives are corrupt in the form of political donations to officials/politicians who return favours in a way that does in fact earn them profits …

… In some statistical approaches, this would have the effect of making BAD+BAD appear equal to zero.


67 ohwilleke January 12, 2018 at 3:53 pm

I don’t buy it for a second.. The problem with the study is that it is trying to capture individualized benefits for collective action in favor of industry-wide or even economic sector-wide (e.g. publicly held businesses generally) coalitions. Lobbying is also cheap compared to potential benefits. You need one big win over ten or twenty years to justify the cost, and a lot of lobbying is also defensive – thwarting other rent seekers rather than getting rents yourself.


68 Art Deco January 12, 2018 at 4:43 pm



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