Institutional ownership monitoring and corporate political activity: Governance implications

Corporate political activity (CPA) represents a strategy whereby firms attempt to influence government policymaking, to advance their strategic goals; firm owners may benefit from it. However, other research indicates that CPA is uncertain and increases information asymmetries between owners and managers. Hence, this study avoids the assumption that owners and managers have similar views regarding CPA and focuses on the relationship between institutional investors, large investors' ownership and investors' portfolio characteristics on firm CPA. The results reveal that institutional ownership is associated with reduced CPA among S&P 500 firms across five election cycles, but that investors' portfolio concentration is associated with increased CPA. The implications of these findings are discussed.