The working assumption of business executives and ordinary taxpayers alike is that political donations can buy big favors from
A recent study by Maria M. Correia of the London Business School puts statistical meat on those bones. The more a company spends on political donations, she finds, the more lenient the treatment it gets from the
Correia even quantifies the value of political grease. A $1-million increase in contributions by a corporation to a political action committee in the five years before a violation of SEC rules, she finds, can reduce the probability of an enforcement action from the SEC by more than half (from 8.58% to 3.43% in her sample). Her conclusion is that "long-term PAC contributions are effective at deterring SEC enforcement."
Furthermore, she finds that higher PAC contributions are associated with lower enforcement penalties and a lower chance that the SEC will cite officers or directors. An increase of $100,000 in PAC money in the five pre-violation years is linked to an 11% decrease in monetary penalties and a 12.9% decrease in the probability that the SEC will bar an officer or director from the business.
As for where companies should put their money to get the biggest bang for the buck, Correia says contributions to "high ranking politicians from the majority party" and to those "sitting on committees involved in setting the SEC's budget or overseeing the agency" have the greatest effect.
Correia based her study on a database of more than 4,000 corporate financial restatements, which she reasoned were often triggers for SEC inquiries. (Correia appears to treat each restated year as one case, so a smaller number of companies were involved.)
As Yves Smith of Nakedcapitalism.com observes in her own gloss on the Correia study, the SEC is dependent on congressional appropriations to do its job. That's different from banking regulators such as the
Accordingly, Congress has far greater power to intimidate the SEC, whether openly or covertly. A certain amount of self-censorship may be involved: SEC officials and staffers seldom need to be told which friends of which Congress member might be gored by a potential enforcement case. They can direct, or redirect, their resources accordingly.
The consequence is not trivial. "The SEC, which was once a feared and respected agency, has become the least effective financial regulator," Smith writes.