This report provides a generalized cost-benefit analysis of a potential rule promulgated by the Securities and Exchange Commission (SEC) that would require public corporations to disclose corporate political spending. Existing evidence on both the dynamics of corporate political spending and the costs and benefits of SEC mandatory disclosure in general, as well as the use of agency theory, an economic framework that highlights the asymmetric interests and knowledge between corporate managers and shareholders, indicate that the range of potential benefits of corporate political spending disclosure – to shareholders and the market – vastly outweigh the possible costs of compliance to public corporations.
- Shareholders are becoming increasingly concerned with corporate spending for political purposes. The lack of information available to the public about such spending puts shareholders and the public at enormous economic risk.
- The costs of requiring the disclosure of corporate political spending would be nominal. For a politically active company to file accurate IRS returns, it must already keep track of its political spending. A new rule requiring disclosure would merely make this internal accounting of corporate political spending available for the investing public.
- Research also suggests that corporate political spending is not proprietary information and that requiring disclosure will not be a larger burden for smaller firms.
- The benefits of mandatory disclosure of corporate political spending would be substantial. It would diminish the monitoring costs for shareholders, create better economic incentives for corporate executives, and generate positive externalities for companies that are already in compliance, and provide potential investors with key information for making rational investment decisions.