Corporations play an increasingly active role in lobbying, with a growing focus on influencing government rulemaking. According to the Center for Responsive Politics, corporate lobbying expenditures at the federal level reached a record $3.7 billion in 2024, accounting for 86.3 percent of total lobbying spending. A substantial share of this activity is directed toward regulatory agencies during the rulemaking process, where firms seek to influence policy through the submission of comment letters on proposed regulations.

Comment letters provide corporations a direct channel to offer specialized information and advocate for their interests. Yet, the effectiveness of these letters in shaping regulatory outcomes—and their consequences for shareholders—remain underexplored.

In a new study, we explore the motivations and effectiveness of corporate lobbying and its value to shareholders by examining  comment letters submitted by firms on the SEC’s proposed governance-related rules. Governance regulations aim to curb agency problems and ensure that corporate actions serve shareholders’ best interests. The SEC’s public comment process is intended to incorporate a range of perspectives to improve regulatory quality. However, corporate participation in this process raises a fundamental question: Are corporations lobbying to improve governance for shareholders’ benefit, or are they seeking to entrench management at shareholders’ expense?

We test two competing hypotheses. The Shareholder Interest Hypothesis posits that corporations lobby to maximize shareholder value by providing regulators with information that leads to better governance. In contrast, the Management Interest Hypothesis suggests that corporations lobby primarily to protect management, potentially weakening the effectiveness of governance regulations.

We construct a dataset of 25 governance-related rules proposed and finalized by the SEC between 2007 and 2023 and collect over 6,000 comment letters on these rules. A key innovation is our approach to measuring the influence of comment letters on the final rules. We identify letters cited in SEC footnotes discussing material changes and assess whether those changes align with the positions advocated in the cited letters. This approach provides a direct and granular measure of how specific comment letters influence the final rules.

Our findings provide strong support for the Management Interest Hypothesis. Over 95 percent of comment letters submitted by public companies advocate for pro-management positions, seeking either to reduce regulatory oversight of management decisions or to expand managerial discretion. In contrast, only 28 percent of academic letters, 8 percent of individual letters, and 23 percent of institutional investor letters adopt similarly pro-management positions. Moreover, public firms that submit comment letters tend to exhibit governance characteristics commonly associated with greater agency problems: combined CEO-chairman roles, low institutional ownership, high cash holdings, low leverage, low profitability, low sales growth, and high SG&A expenses. These patterns suggest that lobbying by public firms is often motivated by a desire to protect entrenched management rather than to promote shareholder interests.

More importantly, we find that public companies’ comment letters are significantly more likely to be cited in final rules than letters submitted by academics (our base group) and more likely to lead to material changes. Public firms’ letters generate 0.340 more net aligned material changes—approximately 72 percent of the sample standard deviation—and receive 70 percent more citations than academic letters. Moreover, their influence is stronger when proposed rules have more significant governance implications, indicating that public firms shape governance rules in ways that favor management interests, particularly on high-stakes rules.

To assess how the market views successful corporate lobbying, we examine stock price reactions around the release of final rules. The stock price of firms whose pro-management comment letters are cited in connection with pro-management rule changes drops significantly. The three-day market-adjusted cumulative abnormal return (CAR) for such firms is –0.718 percent, while firms whose letters are not cited have a positive CAR of 0.676 percent, and the difference is statistically significant at the 1 percent level. These results suggest that successful pro-management lobbying is perceived negatively by the market, consistent with the view that management uses the rulemaking process to advance its own interests at shareholders’ expense.

Our study makes three main contributions. First, we provide a novel method for tracing material changes in final rules back to individual comment letters. By analyzing the SEC’s citations of comment letters and mapping how material changes align with the positions advocated by these letters, we offer a direct and granular measure of influence. Second, we highlight the divergence between shareholder and management interests in corporate lobbying on governance rules. While much of the literature implicitly assumes that corporate political activity seeks to maximize firm value, our findings show that governance-related lobbying often advances entrenched management’s interests. Third, we show that corporate lobbying during rulemaking is an important and underexplored method of managerial entrenchment, shedding light on how management shapes the regulations to its advantage.

Our findings have important policy implications. Governance reforms aimed at protecting shareholders can be undermined by lobbying from public firms with entrenched management. While the rulemaking process is designed to solicit diverse perspectives, it remains susceptible to managerial capture. Given that public companies’ comments carry disproportionate weight, policymakers should consider additional safeguards to ensure the views of shareholders and other stakeholders receive equal attention in the comment process.

Public companies have strong incentives—and, as our study shows, the ability—to influence governance-related rulemaking. While the SEC’s public comment process is intended to enhance regulatory quality, our findings suggest that management can use it to entrench itself. To ensure that governance rulemaking protects shareholders, it may be necessary to reconsider how public input is solicited, evaluated, and balanced.

This post comes to us from professors Qianzhou Du at the University of Science and Technology of China, Jiekun Huang at the University of Illinois at Urbana-Champaign,  Pengfei Ye at Virginia Tech, and Qiaozhi Ye at Shanghai University of Finance and Economics. It is based on their recent study, “Comments that Count: How Corporate Lobbying Shapes Governance Regulations,” available here.