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A Hidden Hand in Corporate Lobbying

I show that institutional investors can facilitate corporate lobbying. Firms with greater lobbying institutional ownership lobby more. Using a novel dataset with lobbying information on specific congressional bills, I observe that institutions are more likely to lobby on the same bills with firms possessing greater weights in institutions’ portfolios. Furthermore, institutions strategically lobby on bills that influence more firms they hold. Firms benefit from institutions’ lobbying support. Bills lobbied by institutions are more likely to pass compared to bills only lobbied by firms. The passage of such bills leads to greater abnormal returns. Additional evidence shows that institutional investors protect firms’ private political information by voting against shareholder proposals requesting additional lobbying disclosure. The findings have important economic implications: financial institutions can provide a helping hand in firms’ external governance related to law and politics.