Political Information Flow and Management Guidance

Abstract

We examine whether politically active firms play a role in disseminating political information via their management guidance. Using campaign financing activity or the presence of a government affairs office to proxy for firms’ access to political information, we find that politically active firms are more likely to issue management guidance overall, and especially when the government is a customer of the firm. Further, relative to politically inactive firms, the guidance released by politically active firms is more likely to discuss government policies. In addition to using numerous econometric techniques to address self-selection, we examine the timing of when guidance is issued. We find that politically active firms are more likely to issue guidance and change their government policy-related disclosures prior to the public revelation of government policy decisions. Collectively, these findings suggest that the privileged information firms obtain through their political activities is shared with investors through voluntary disclosures.