Abstract
This thesis presents a comprehensive analysis of corporate governance (CG) and corporate political activity (CPA), climate change exposure (CCE) and institutional investor distraction. The research consists of three dynamic and interrelated essays exploring CG and CPA literature. The first essay (Chapter 2) provides a systematic literature review of the interrelations between CG and CPA. The second essay (Chapter 3) employs quantitative methods to investigate the relationship between CPA and CCE. Similarly, the third essay (Chapter 4) applies quantitative analysis to examine the association between institutional investor distraction and CPA. By doing so, these essays deepen our understanding of the interrelation between CG and CPA, the influences of CPAs on firms' climate exposures and the roles played by institutional shareholders associated with CPA.
The first essay maps the interplay between CG and CPA in the existing literature over 40 years, focusing on three key aspects: institutional context, theoretical framework and methodological approach. A structured organising framework is used to guide the whole systematic literature review process. The initial sample articles are collected using Boolean keyword search strings in the Web of Science and Scopus databases. They are further filtered based on quality and relevance criteria, resulting in a final review of 197 research articles. With respect to the aspect of institutional context, the findings reveal mixed results for the interplay of CG and CPA. These mixed findings are largely attributable to differences in institutional settings. Categorising the prior literature according to the national business system (NBS), this study shows that while the CG-CPA pattern within a single NBS is consistent, it varies across different NBSs. The second focus of this study is the theoretical framework employed in the existing literature. The findings indicate that agency theory is the dominant single theory used to explore the interrelationship of CG-CPA despite variations in the interpretation and manifestation of CG and CPA across different economies. The third aspect of this research is the methodological approach, which synthesises CPA databases, the deployment of quantitative and qualitative methods and the approaches to address the endogeneity issues. Notably, this essay highlights a lack of research on firms’ non-financial accountability and stakeholder activism to understand and reveal the CG-CPA interrelationships. Additionally, it identifies the need for further development and applications of theories at the macro-, meso-, and micro-levels to understand the CG-CPA interactions better.
Building on the research gap related to non-financial accountability identified in the first essay, the second essay explores the relationship between CPA and CCE. Grounded in stakeholder-agency and neo-pluralist political theories, this essay examines how firms invest in CPAs for their own interests, thereby exposing their firms to climate risks. The study analyses a panel dataset of U.S. firms between 2001 and 2020. CPAs are measured by firm- and executive-level campaign donations and lobbying expenditures, while CCE is calculated using climate-related information from earnings conference call transcripts. The findings indicate that all CPA measures are significantly and positively related to CCE. Furthermore, channel analysis reveals that firms engaging in CPAs exhibit significantly lower scores in innovative and environmentally friendly strategies. This is because firms allocating substantial resources to CPAs have fewer monetary items to invest in improving environmental innovation, leading to greater exposure to CCE. Additionally, CPA firms are likely to have high financial stress due to the limited resources for a firm, exposing them to more CCE. The moderation analysis shows that these baseline relationships are more pronounced if CEOs are more risk-taking and have higher pay-performance sensitivity. The main results are validated through several robustness checks. Endogeneity concerns are addressed using a Heckman selection model and difference-in-difference analysis.
The third essay examines the impact of institutional investor distraction on CPAs, which uses a sample of U.S. firms from 2001 to 2020. The investor distraction score is calculated by considering industry-level stock returns, the market value of institutional investors’ shareholdings within their overall portfolio and the proportion of shares held by these investors among all outstanding shares of listed firms. Based on the limited attention hypothesis and agency theory, the results indicate that firms may engage in more CPAs while their institutional investors temporarily shift their focus to other industries, which reduces their monitoring intensity. Moderation analysis reveals that this relationship is exacerbated by several factors, including firms with fewer audit committee meetings, being in non-mature stages and having low political risks. After various checks, the main results are robust and further validated using a Heckman selection model and entropy balancing method. Additionally, the study explores managerial political ideology. The results show that managers tend to donate to Democratic candidates while institutional shareholders are distracted. Such donation actions are targeted to gain more regulatory benefits and mitigate potential future regulatory risks.