This study contributes to the academic works regarding the importance of corporate political strategy engagement to firm value. The main purpose of this research is to examine how the cost of equity capital is affected by corporate lobbying. Using a sample data of 1964 firms from the US during the period from 2002 to 2018, we find that firms with higher lobbying expenditure have a lower cost of equity. Thus, the result suggests a contribution to politics can help firms further enhance their financial performance. In addition, we test whether there is a threshold effect in this relationship and the findings show that equity holders will perceive firms as riskier if they overinvest in political activities. With a regard to political issues, our research provides evidence that political risk is another factor that influences the cost of equity. Moreover, when separating the sample based on the level of political risk exposed by each firm, we find that the equity financing costs from riskier firms will be affected more pronouncedly by corporate lobbying. Finally, the study also suggests lobbying has a more pronounced impact on the cost of equity capital for highly leveraged companies.

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