Corporate Strategy, Political Contributions and Corporate Risk-Taking

Despite the importance and prevalence of corporate political activities in modern organizations, there remains noticeable limited insights on the potential relationship between political contributions and companies risk-taking activities. Using a cross-country sample of 307 firms from 22 countries from 2002–2017, we examine this pivotal issue and offer evidence to demonstrate that firms that make monetary political contributions exhibit lower levels of risk as measured by different proxies for risks, namely, systematic, idiosyncratic and total risk. This can be attributed to lower cost of capital for politically connected firms (PCFs), their increased likelihood of being bailed out in case of financial distress and reduced agency problems. Our results suggest that political contributions can be a useful tool to mitigate risk exposure