Kin in the Game: How Family Ties Help Firms Overcome Campaign Finance Regulation

Abstract

Can campaign finance regulation mitigate the political influence of economic actors? In this article, we identify a new factor behind the ineffectiveness of campaign finance regulation---the internal structure of organizations whose behavior it seeks to change. We study the effect of a Supreme Court ban on corporate campaign contributions on the political behavior of Brazilian public companies. We argue that the ban posed a collective action problem for shareholders to which family ties provided a solution by internalizing the value of political investments. Consistent with this prediction, using a difference-in-differences design and previously untapped data on family ties in Brazilian public companies, we show that, after the ban, individuals in hitherto politically active family firms substituted individual for corporate contributions---increasing their probability of contribution by 54%---while no substitution is observed in non-family firms. We probe the notion that family ties transmit influence by documenting the presence of peer effects in the contribution behavior of family members. The bifurcated effects of the ban illustrate how organizational structure---an understudied source of de facto power---can limit the effectiveness of programmatic reforms seeking to curtail political influence and thus contain a cautionary tale for policymakers.