WASHINGTON – The fight over corporate political donations is evolving from whether such gifts are in the public's interest to whether they're even in the interest of the companies themselves.

A pair of University of Minnesota finance professors who looked at the question found that on average, for every $10,000 a company donates to politics, its stock market value declines by $1.33 million in the next year.

The conclusion, from Rajesh Aggarwal and Tracy Wang of the U's Carlson School of Management, along with Felix Meschke of the University of Kansas School of Business, adds to a growing body of research that suggests that businesses' contributions generally hurt their shareholders rather than help them.

The researchers say companies that use their money for political donations tend to spend less on research and development and investment.

"This was strictly an academic exercise," Aggarwal said. "But I am persuaded that in many cases it is not in the shareholders' interests to be making political donations."

The issue is important in Minnesota, where activists have introduced shareholder ballot measures at both Target and 3M calling for studies on the feasibility of banning many types of donations. Both companies declined to comment on the academic research.

But the professors' conclusions are heresy to the political culture of Washington, where highly paid lobbyists and political fundraisers are presumed to rule.

The Manhattan Institute went so far as to issue a 40-page report titled "Corporate Political Spending: Why the New Critics Are Wrong." The report criticized Aggarwal and Harvard law professor John Coates by name.

The Manhattan Institute said Aggarwal's "results support, at most, an inference that ... companies' underperformance may be related to factors that also influence their decisions to contribute."

In other words, companies in challenging circumstances might be more likely to seek help in Washington than companies that are thriving.

3M's board made its case for political contributions in a 2012 proxy statement opposing a shareholder proposal to ban corporate general fund political contributions.

"Elected representatives at all levels of government make laws and regulations that can and do affect the company's business," the board wrote. "To effectively advocate the company's and stockholders' interests, we believe we must actively participate in the political process."

One problem, especially with corporate donations to outside political spending groups such as Super PACs, is that companies can suffer damage to their image.

"See Target and Chick-fil-A," said Harvard's Coates, who like Aggarwal and Wang, has research that shows many corporate political contributions can be "affirmatively bad" for shareholder value.

Target found itself boycotted in 2010 because its $150,000 contribution to the outside spending group Minnesota Forward went to back Republican gubernatorial candidate Tom Emmer. Target favored Emmer's stance on business issues, but his stance against gay marriage hurt Target's image as an inclusive company.

Chick-fil-A gave millions to anti-gay groups, and its president's outspoken opposition to gay marriage led to boycotts and bad publicity.

Bruce Freed of the Center for Political Accountability recalled a case in which members of the pharmaceutical industry gave money to an outside political group that helped elect candidates who opposed contraceptive drugs that some of them made.

Freed, whose group tries to persuade corporations to publicly disclose all of their political gifts, does not believe new data on the ineffectiveness of corporate political giving is definitive. But he said it amounts to a very loud warning shot. "Companies need to think three, four and five times what risks political spending poses and what they get for it," he said.

Study methodology

Aggarwal, Wang and Meschke applied mathematical formulas to 1,381 companies, comparing business performance with corporate political contributions of so-called "soft money" from general funds from 1991 to 2004.

These donations went to political parties and outside political spending groups called 527s. Federal law forbids corporations from contributing general funds directly to candidates.

Not only did companies with no political donations collectively outperform those that gave. Companies that made the most political donations performed, on average, worst.

There were notable exceptions. In Minnesota more companies that made political contributions showed increases than reductions in shareholder value, Aggarwal, Wang and Meschke found. Target was among them; 3M was not, the researchers said.

Minnesota's biggest loser, according to the study, was Northwest Airlines, whose soft money donations averaged nearly $314,000 per year from 1991 to 2004, while the company's risk-adjusted return slumped 30.3 percent.

The overall national trend showed that shareholder value in companies that gave politically was down, not up.

Larger donations

Wang pointed out that soft money donations were capped, then banned by campaign finance reform during the period she studied.

She and Aggarwal have yet to gather enough information to say whether the 2010 Citizens United Supreme Court decision, which allows unlimited, often secret corporate contributions to political action committees (PACs) and other outside groups, made a difference.

"Suppose a company went from $100,000 a year to $10 million a year," Aggarwal said. "That's way outside of what we observed."

At the same time, neither Aggarwal nor Wang has seen anything in the record spending of the 2012 election cycle that argues against what they concluded from the earlier numbers. In the 2012 cycle, businesses donated nearly $2.7 billion to candidates (legally through company PACs and individual employees), other PACs and outside spending groups, the Center for Responsive Politics reported.

Meanwhile, activist shareholders have begun to seize on recent reports like the one produced by the Minnesota professors to leverage corporate boards to change policies.

"I'd like to hear from corporations a robust defense of how their political spending is enhancing their particular companies' value in the long term," said Shelley Alpern of Clean Yield Asset Management, which is leading the attempt to get 3M to change its policy. "The burden of proof should be on them."

Jim Spencer • 202-383-6123