Corporate and managerial private interests as motives for corporate political donations in Australia

Abstract

This thesis examines corporate political donations in relation to corporate interest motives and managerial private interest motives, and the moderating effects of corporate governance mechanisms. Corporate interest motives are represented by measures of exposure to decision-making by government and its agencies. The private interest motives of managers and directors are proxied by the degree of corporate political donation influence from the professional and social networks of managers and directors. To examine the effects of corporate governance mechanisms, I use number of blockholders, composition of board of directors and directors' shareholdings as potential monitors. I apply panel regression techniques to the corporate political donations of a sample of large listed Australian corporations during 2000-2007. The results suggest both corporate and private interests were important motives for corporate political donations for the study period, with weak evidence of the moderating effects of some corporate governance mechanisms. With respect to corporate interest motives, the results are consistent with the proposition that corporations make political donations to increase the likelihood of obtaining favourable decisions. I find the level of corporate political donations is positively associated with a corporation's exposure to government decision-making in parliament. I do not find a significant association between donations and a corporation's receipt of government contracts, or a corporation's exposure to government proceedings outside parliament. With respect to private interest motives, the results suggest managers and directors are influenced by both their professional networks and social networks (or individual social preferences) in making corporate political donations. I find the levels of corporate political donations are positively associated with managers' and directors' relationships (interlocks) with other donating corporations and managers' and directors' participation on non-profit boards. With respect to corporate governance mechanisms, the results suggest that monitoring by substantial blockholders reduces the extent to which private interests (proxied by managers' interlocks with other donating firms and managers' participation on non-profit boards) influence a corporation's donations, but neither board independence nor executive and non-executive directors' shareholdings significantly moderate donation behaviour. In some results, directors' shareholdings appear to aggravate the effect of private interest motivations on donations in a manner consistent with increased management control and entrenchment, rather than alignment of interests. When non-executive directors are heavily tied to other donating firms, increasing their shareholdings increases the impact of the ties on donation levels.