The Price of Political Ties: Reputational Risk and the Strategic Divestment of Corporate PACs — by Eric A. Baldwin, Takuma Iwasaki, John J. Donohue, Charlie Grabois

Political contributions generate access and influence for firms, but their public visibility exposes firms to reputational risk. We study how firms adjust their political spending when the reputational cost of political ties rises sharply. To identify this response, we exploit fatal school shootings and mass shootings as exogenous shocks to the salience of gun violence in the United States. We implement a staggered difference-in-differences design on a panel of corporate PAC contributions to U.S. House candidates, 2000–2024. We find that corporate PACs divest selectively and temporarily following gun violence shocks. Contributions to Republican candidates fall by 70.3% after fatal school shootings in competitive districts and return to baseline within nine months, with no substitution toward Democratic candidates. A parallel penalty of 60.9% emerges for Republicans in safe Democratic districts but is absent in safe Republican districts. Mass shootings generate similar perturbations in corporate contributions. These patterns indicate that firms withdraw only where the reputational risk of continued association is high or its strategic value is low. The observed divestment appears across industries and is stronger for firms with greater consumer exposure. Our findings reveal that firms treat political ties as time-varying liabilities, temporarily withdrawing visible financial support when issue salience spikes and resuming once public attention fades, leaving firms’ long-run political investment intact. Since public pressure is limited and dissipates quickly, and corporate divestment is transient rather than durably reallocated, the underlying financial incentives facing policymakers remain unchanged in the long run, sustaining the policy status quo.