Does it pay to lobby? Examining the link between firm lobbying and firm profitability in the European Union

ABSTRACT

Does firm lobbying in the EU increase firm profitability? While there is a well-established literature on this issue in the US context, existing EU studies have overlooked this question. Ours is the first study to examine links between firm lobbying and firm profitability. To this end, we tailor theoretical insights from the US context to the EU. While money plays a fundamentally different role in EU lobbying compared to the US, the lobbying context and legislative processes of the EU are conducive to firm lobbying efforts translating into firm profits. Our two-stage OLS regression results, using a novel dataset for 728 firms over a four-year period, support this argument. Specifically, we find that the more money firms channel into their lobbying activities, the more tangible returns on this investment they can expect.

KEYWORDS:

• European Union
• firm lobbying
• firm profitability
• lobbying expenditure

Acknowledgements

We would like to thank our three anonymous reviewers whose insightful comments helped improve this manuscript.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 This figure is based on the authors’ own calculation using data from Lobby Facts (https://lobbyfacts.eu/reports/lobby-costs/all/0/2/2/2/21/0/2019-12-31; accessed 11.4.2020). Companies report lobbying expenditures by indicating a spending bracket or by indicating a specific amount. As such, the total lobbying expenditure is between 439 and 562 million Euro. The value presented falls between these minimum and maximum values.

2 Lobbying expenditures for firms are considerably higher than those for NGOs. Using LobbyFacts data for the same period, the top spending NGOs were European Environmental Bureau (4.7 million euro), European Youth Forum (2.9 million euro), and WWF European Policy Programme (also with 2.9 million euro). For business associations, the top three spenders were significantly higher than firms: European Chemical Industry Council (10.5 million euro), Insurance Europe (6.7 million euro), and AFME (4.7 million euro).

3 Figures for 2019 are based on the authors’ own calculations. See the online appendix for the data used for the top 50 spending firms in 2019.

4 For a comprehensive comparative analysis of the two systems see Mahoney (2008) and Woll (2012).

5 Integrity Watch – Transparency International EU. Retrieved 15/07/2019 from https://www.integritywatch.eu/.

6 Unfortunately, due to the voluntary nature of the EU Transparency Register, we are unable to conduct a Heckman selection model to test for self-selection bias.

Additional information

Notes on contributors

Adam William Chalmers

Adam Chalmers is a Senior Lecturer of Politics in the Department of Political Economy at King’s College London, UK.

Francisco Santos Macedo

Francisco Macedo is an Independent Researcher.