Do industries use advertising strategically when subject to the threat of political costs? Communication via advertising can assuage public concerns, which, in turn, reduces the incentives for elected officials to impose regulations on the industry. We identify expected political costs using cases of repeated industry testimony at congressional hearings. To disentangle strategic advertising in response to the threat of political costs from advertising for other reasons (e.g., reputation building or to generate sales), we exploit the fact that only politicians overseeing industry-relevant hearings can impose costs on a given industry. We find that subsequent to these hearings, affected industries increase their advertising by 132% more in the electorates of the politicians overseeing the hearings, relative to the increase in the electorates of other politicians. The strategic increase in advertising is magnified in the electorates served by the most senior politicians on the committees and those with the most politically engaged citizens. The increase is also pronounced in election years, when the hearings are longer, contain more negative language, or include a higher proportion of legislation-related words. Moreover, our results are not driven by politicians’ decisions to serve on committees relevant to their local-area firms. In sum, our findings provide novel evidence about corporate communication with non-investor stakeholders.

ABSTRACT Over three-quarters of U.S. taxpayers receive federal tax refunds, largely due to income tax over-withholding. This study explores how over-withholding impacts investments by comparing individuals’ investment behavior following wage receipts and tax refunds. We find a significantly higher marginal propensity to invest out of wages than refunds, suggesting that over-withholding, which alters the labeling and timing of income, meaningfully influences financial decision-making. Our cross-sectional analysis indicates that the differential investment rates are more pronounced for individuals with automatic investment setups and lower financial sophistication. The difference cannot be fully explained by alternative explanations such as lack of awareness, fixed dollar investment goals, timing differences between wages and refunds, uncertainty of refunds, transaction costs, or the perception of refunds as additional windfall income. Our findings underscore the importance of considering behavioral factors in the formulation of tax policies and contribute to the accounting literature that examines taxes and investment behavior.