Does Disclosure Help?

Following up on yesterday’s column about corporate spending, I saw that John Coates (Harvard Law School) and Taylor Lincoln (Public Citizen) have published a study of the relationship between voluntary disclosure of political spending and company value (summary here). In short, after applying a bunch of controls, they find that companies with voluntary disclosure policies have price-to-book values that are 7.5 percent higher than companies that don’t.

Citing earlier research, they also say, “among the S&P 500 – which accounts for 75 percent of the market capitalization of publicly traded companies in the U.S. – firms active in politics, whether through company-controlled political action committees, registered lobbying, or both, had lower price/book ratios than industry peers that were not politically active.”

Of course, the causality could run either way, and Coates and Lincoln are not claiming that voluntary disclosure in itself makes a company more valuable. Disclosure policies make it less likely the CEO will blow company money on her pet political projects, and so it stands to reason that companies that are better governed in general—and hence more valuable—are more likely to have such policies. But it certainly implies that disclosure policies are not going to bankrupt the Great American Corporation.