Political Spending DOES NOT Boost ROE - Straight From the Correlation Doesn’t Mean Causation File
CFO Magazine’s May 2008 print issue had a blurb entitled “Political Spending Boosts ROE?” (online the title is a bit better). Basically, 3 business school professors looked at political contributions over a 25-year period and found that an average annual contribution of $23,471 correlated with a $157 million boost in annual compounded returns.
While I’m sure presidential and congressional candidates love statistics like this, this is patently inane as a method to boost ROE. Correlation does not equal causation folks and no matter how impressive statistical window dressing is, it doesn’t mean that you do X action and will get Y result.
I read of another great correlation recently that said that fat people are stupid (I can’t make stuff like this up - look here).
But please be careful when you read about correlations. If you really believe that political spending does boost your company’s ROE, I wanted to share another study that was recently released that said giving money to Anand Sanwal will make you more attractive and add 20 years to your life. For those wanting to send checks, email me and I’ll send you my address.
Tags: Alexei Ovtchinnikov, CFO magazine, correlation, Huseyin Gulen, Michael J. Cooper, political spending, regression, ROE, University of Utah, vanderbilt university
