Developing an Original Theory of Corporate Political Activity and Firm Value in Emerging Market Democracies: Evidence from Nigeria

Corporate political activity, encompassing lobbying, campaign financing, and regulatory advocacy, is prevalent in Nigerian business and its relationship with firm value operates through mechanisms specific to emerging market democratic institutions that existing theories do not adequately model. This study develops an original Theory of Corporate Political Activity in Emerging Market Democracies (TCPAED), which formally specifies how the electoral cycle, democratic institution quality, and regulatory rent-seeking dynamics interact to determine the value effects of corporate political activity for Nigerian firms. The TCPAED draws on public choice theory, rent-seeking theory, and political economy of finance to generate original predictions about the conditions under which corporate political activity creates or destroys firm value. A unique dataset of corporate political activity in Nigeria is constructed, covering electoral cycle campaign contributions, regulatory comment activity, trade association leadership positions, and government contract procurement proximity for 75 NGX-listed companies from 2011 to 2023. Event study methodology assesses market reactions to political events (elections, regulatory decisions, and government programme announcements) for high versus low political activity firms. Panel regression assesses long-run valuation effects. Results confirm the TCPAED's prediction of heterogeneous value effects: political activity increases firm value (measured by Tobin's Q) during election cycle peak periods (mean CAR = +3.2%, p < 0.001) but destroys value in post-election governance normalisation periods (mean CAR = -1.8%, p < 0.05). Democratic institution quality significantly moderates all political activity value relationships. The study produces an original theoretical model and the first event study analysis of corporate political activity value effects in Nigerian capital markets. Keywords: corporate political activity, firm value, emerging market democracy, Nigeria, event study