In this study, we investigate whether and to what extent institutional shareholders' political values influence their investees' environmental disclosure and performance. Using employees' political donation data, we construct institutional investors' political ideology score, which higher (lower) value represents a more Republican- (Democratic)-leaning culture. We find that firms led by institutional shareholders with a more Republican-oriented political ideology are less likely to issue environmental reports. Such a negative effect is more pronounced for firms with institutional shareholders with long-term horizons, with high corporate Republican ideology scores, and without an environmental committee. We further find that institutional shareholders' Republican-oriented political values are negatively associated with their investee firms' environmental performance and green innovations. Overall, our results indicate that institutional shareholders' internal political polarization significantly influences corporate environmental disclosure policies.

We examine the relationship between political geography and corporate political strategy by considering lobbying expenditures. We find that firms increase their lobbying intensity when local politicians cannot provide a direct link to the governing elite, i.e. when firm location on the political map shifts to an area that is not closely aligned with the president. Our results indicate that firm lobbying is a means for exerting influence on political power and is primarily geared toward building valuable political capital in order to exploit short-term opportunities. Lobbying expenditures are a matter of expediency for politically active firms that tend to spend less on lobbying when there is an alignment of power and more when there is misalignment of power. We also find that more sophisticated, better informed institutional investors recognize and/or encourage corporate political strategies that involve adjusting lobbying efforts in response to changes in political geography.

This study examines how antitrust law adoptions affect horizontal merger and acquisition outcomes. Using the staggered introduction of competition laws in 20 countries, we find antitrust regulation decreases acquirers’ 5-day cumulative abnormal returns surrounding horizontal merger announcements. A decrease in deal value, target book assets, and industry peers’ announcement returns are consistent with the market power hypothesis. Exploiting antitrust law adoptions addresses a downward bias to an estimated effect of antitrust enforcement. The potential bias from heterogeneous treatment effects does not nullify our results. Overall, antitrust policies seem to deter post-merger monopolistic gains, potentially improving customer welfare.

We examine the effect of shareholder litigation rights on managers' acquisition decisions. Our experimental design exploits a U.S. Ninth Circuit Court of Appeals ruling on July 2, 1999 that resulted in a reduction in shareholder class actions. We find that, since the ruling, firms in Ninth Circuit states acquire larger targets. Furthermore, acquirers' returns are lower in these states, especially for those with weaker corporate governance. Further analysis shows that value destruction is the result of managers' freedom to conduct empire-building acquisitions using overvalued equity. Overall, our findings indicate the importance of shareholder litigation as an external governance mechanism.