Aggarwal, Meschke, and Wang have posted this draft on SSRN. Here is the abstract:

We examine corporate contributions to political candidates for federal offices in the United States from 1991 to 2004. We find that firms that donate have operating characteristics consistent with the existence of a free cash flow problem. Further, donations are negatively correlated with future excess returns. An increase in donations of $10,000 is associated with a reduction in excess returns of 4.9 basis points. When we instrument for donations, we find an even stronger negative association between donations and returns. We find that worse corporate governance is associated with larger donations and, through its impact on donations, leads to worse excess returns. Firms that make donations engage in more acquisitions and donating firms’ acquisitions have significantly lower cumulative abnormal announcement returns than firms that do not make donations. When we try to isolate instances in which donations may lead to better returns, we find no support for the hypothesis that political donations represent an investment in political capital. Taken together, our results suggest that political donations are symptomatic of an agency problem.