The Impact of Political Connectedness on Firm Value and Corporate Policies: Evidence from Citizens United

In this study, we examine the effects of political connections on firm value and corporate policies by exploiting an exogenous Supreme Court decision (Citizens United) that lifted long-standing restrictions on corporate political contributions. We find a significant negative market reaction to politically connected firms surrounding the announcement of Citizens United. There is also a significant increase in the cash holdings of politically connected firms relative to before the event and relative to non-politically connected firms. For politically connected firms, this result is further exacerbated by poor corporate governance quality. Collectively, these findings are consistent with a positive association between agency costs and political connections