Corporate Dark Money in Politics: Evidence from India

Abstract

This paper empirically investigates the use and rationale of corporate dark money in politics using a unique regulatory timeline in India. From 2018 onwards, firms were allowed to make unlimited undisclosed donations to political parties via ``electoral bonds.'' A 2024 Supreme Court ruling banned the practice and retroactively made public the details of all \$2 billion of such donations. We link this unique data to a newly assembled dataset of publicly disclosed contributions going back to 2003 to examine how donors, recipients and patterns of corporate donations change when an opaque channel for campaign financing is introduced. We present four novel facts. First, once allowed, undisclosed donations immediately dwarf in aggregate amount disclosed donations. Second, firms that are larger and more exposed to political parties and investors disproportionately select into the opaque channel. Third, firms that donate without disclosure requirement do so more often, in larger amounts, and to a wider range of political parties than both disclosed donors and their own behavior before the opaque channel became available. Fourth, losing confidentiality is costly to donors: when donation data becomes public, donors' market capitalization experience negative abnormal returns that are significantly larger than the donations, suggesting high private returns to confidential donations. This study uncovers the significant demand from firms for making hidden political donations, and provides supportive evidence for opacity lowering the reputation and retaliation costs of corporate financing of political campaigns, thereby fueling the quantity and changing the source and destination of corporate donations in the search for potential quid pro quos.