Executive compensation and executive contributions to corporate PACS

This paper estimates the determinants of the contributions made by top executives to their firm's Political Action Committee (PAC). We find that executive's personal PAC contributions (proxy for the interest of the firm) are positively related to his shareholdings, income and option holdings (proxies for the interests of the executive). Contributions are also higher for CEOs and board members. This is direct evidence that the structure of the contracts between the firm and management, especially compensation, aligns manager's personal behavior with the interests of the firm.