We find that corporate governance and executives’ personal financial incentives are important determinants of firms’ ability to extract benefits from political participation . Firms with more independent boards are more likely to establish corporate political action committees (PACs), and executives in such firms exhibit a stronger sensitivity of campaign contributions to their personal equity stakes. We also show that disperse ownership limits PACs’ ability to raise funds because even large firm-level benefits from political participation may become insignificant for individuals with small equity stakes. This may help explain why aggregate PAC contributions remain relatively small compared to the large firm-value benefits such contributions can provide. However, the negative effect of disperse ownership on political donations is mitigated by corporate governance , as well-governed firms are able to better align their managers’ incentives with the benefits from corporate political participation.

Prior research suggests that the effectiveness of corporate directors depends on their qualifications. We investigate whether directors' qualifications affect the roles they perform on the board (board functions) and their compensation. On average, directors that are more qualified handle more board functions, resulting in higher pay, but this is not true for “co-opted” directors (joined the board after the CEO). However, co-opted directors are assigned more functions and receive higher pay on boards where the CEO's influence is high. We also find that some firms award directors “discretionary compensation” (compensation that is unrelated to board functions), and that the likelihood of such compensation is correlated with CEO power. Overall, our evidence generates new insights into how director roles and financial incentives are allocated across directors, and the extent to which this allocation depends on CEO power.