Financial industry lobbying and shareholder litigation outcomes: implications for managers and regulators

• Published in: Research in international business and finance 2020-10, Vol.53, p.101207, Article 101207
• Main Authors: Hassan, Mohammad Kabir, Unsal, Omer, Hippler, William J.
• Format: Article
• Language: English
• Subjects: Corporate fraud; Corporate governance; Corporate lobbying; Regulation
• ISSN: 0275-5319; 1878-3384
• DOI: 10.1016/j.ribaf.2020.101207

We examine the relationship between financial firm corporate lobbying, shareholder-based litigation outcomes, and firm value. We show that political lobbying lowers federal class action securities litigation likelihood for public financial institutions. Secondly, lobbying firms experience a higher likelihood of having litigation dismissed, and the average settlement amount is significantly lower for lobbying institutions. In addition, shortly after a litigation announcement, lobbying firms experience significantly higher cumulative abnormal returns (CARs), compared to non-lobbying firms. Finally, we show that lobbying firms have higher long-run buy-and-hold abnormal stock returns (BHARs) following lobbying activities. Our results link financial institution lobbying activity with improved legal outcomes and relatively higher firm value. While lobbying improves financial firm value, our results also imply that lobbying creates a disadvantage for non-lobbying firms within the industry. Our results provide insights, not only to corporate managers, but to regulators and policymakers interested in the impact of lobbying on the efficacy and objectivity of regulation and enforcement in the financial services industry.