Managerial ability, political risk and political spending disclosure

Abstract

Purpose While the determinants of voluntary political spending disclosure have been extensively studied in the literature, there remains a lack of clear evidence regarding the specific impacts of managerial ability and political risk on such disclosure. Thus, the purpose of this study is to shed light on whether and how managerial ability and political risk influence firms’ political spending disclosure. Design/methodology/approach This study uses a sample of 2,242 firm-year observations of S&P 500 companies between 2013 and 2021. Findings This study finds that firms with high-ability managers generally disclose more information about political spending. This positive relationship between managerial ability and political spending disclosure holds even after conducting additional tests to address potential endogeneity concerns. Furthermore, this study finds that firms operating in high-risk political environments also exhibit a greater propensity to disclose information regarding their political spending. The results remain robust to alternative measures of managerial ability and political risk. Practical implications This study suggests that when designing policy to motivate firms to disclose political spending information, policy makers need to be aware of the critical role of managerial ability and idiosyncratic political risk the firm faces. In addition, this study offers insights to shareholders, advocacy groups, regulators and academics interested in understanding the determinants of political spending disclosure. Originality/value This study is among the first to provide empirical evidence that political spending disclosure can be explained by managerial ability and political risk. In addition, this study complements the literature on the consequences of managerial ability and political risk. Focusing on voluntary political spending disclosure, this study contributes to a deeper understanding of the factors shaping the overall corporate information environment.