Political spending, related voluntary disclosure, and the cost of public debt

Following the Supreme Court decision in the Citizens United v. Federal Election Commission case of 2010, which removed restrictions in relation to firms' political spending, and building on the growing debate over whether voluntary political spending disclosure (VPSD) provides valuable information, we examine the effect of political spending on the cost of public debt and the role of VPSD on this effect. Based on a measure of VPSD that became available in 2012 and a large dataset on US firms' actual political spending, manually extracted from different filings, we provide novel evidence that, in the post-Supreme Court decision period, political spending increases the cost of public debt. This is consistent with the uncertainty associated with political spending. Moreover, we find that the level of voluntary disclosure weakens the positive association between political spending and the cost of public debt. These results hold across multiple specifications as well as when we use a sudden release of firms' political spending as an exogenous shock to political spending.