Australia’s most significant overhaul of federal electoral finance law in four decades is designed to curb the influence of big money. But what if some of that influence never appears as a large political donation?

Research presented at a recent UNSW workshop suggests political preferences can travel through corporate ownership. When institutional investors acquire significant stakes in listed companies, those companies become more likely to donate to politicians already supported by their investors – even when those politicians have less relevance to the companies’ businesses.

The findings sharpen a difficulty at the centre of Australia’s debate about political finance: how to limit the influence of money without entrenching the parties already in power. They also illustrate the task that UNSW’s Resilient Democracy Lab has set itself: connecting evidence about how power operates with the rules intended to contain it.

The “Money, Power, and Democracy” policy workshop, recently held at UNSW Sydney, brought economists together with lawyers, political scientists, regulators and public-integrity advocates. Hosted by the Resilient Democracy Lab and the Centre for Public Integrity, the program moved from research on money and power to Australia’s electoral finance laws and the prospects for reform. It was convened at a consequential moment: the Commonwealth’s new caps on political donations and electoral expenditure have yet to take effect, and the legislation is already the subject of a constitutional challenge.

When reform protects the status quo

Those laws are under pressure. Passed in February 2025, the Electoral Legislation Amendment (Electoral Reform) Act 2025 represents the largest change to the Commonwealth Electoral Act in 40 years. Major provisions taking effect from January 2027 will introduce caps on political gifts and electoral expenditure, lower the disclosure threshold to $5000 from $17,300 and require much faster reporting of donations, in some cases within 24 hours during an election period.

The annual cap on gifts from one donor to one recipient will begin at $50,000, with higher aggregate limits across states, territories and the federal system.

Learn more: Why we don’t trust politicians (and what this means for democracy)

The reforms are intended to prevent wealthy interests from dominating elections. But independents and smaller parties argue that the system advantages established parties with national branch structures, accumulated resources, and public funding, based in part on past electoral performance.

The constitutional difficulty lies in balancing two democratic risks. A permissive system allows wealthy donors to exercise disproportionate influence. A restrictive one can inhibit political communication and make it harder to challenge incumbents.

That tension intensified in April, when the High Court unanimously invalidated Victoria’s political finance regime. The law imposed strict donation caps but allowed transfers between established parties and certain well-capitalised “nominated entities”. Because only the major parties had secured such entities before the relevant deadline, the exemption gave them access to resources unavailable to new entrants.

The Court found that the regime impermissibly burdened the implied freedom of political communication. The Commonwealth legislation is different, but it is now facing a constitutional challenge of its own.

For Resilient Democracy Lab co-director, Professor Rosalind Dixon, that uncertainty gave the workshop an immediate practical significance. A High Court decision against the federal scheme could leave only a short window to devise replacement legislation before the next election.

The workshop also drew on the Lab’s interdisciplinary model. Relaunched this year by UNSW Business School and UNSW Law & Justice, the Lab studies how economic, legal and political forces affect democratic institutions. Its agenda encompasses economic power, institutional design, campaign finance, media, misinformation and foreign interference. In practice, economists examine how businesses and investors acquire political power, and legal scholars assess what Australian governments can constitutionally do about it.

Passive investors, active influence

One of the day’s central presentations came from University of California, Berkeley economist Professor Matilde Bombardini, who examines whether rising institutional ownership has also concentrated political influence.

Institutional investors – including asset managers and pension funds investing on behalf of clients – now control a large share of listed companies. In the US, institutional ownership rose from 6% in 1950 to 65% in 2017. BlackRock, Vanguard and State Street together held more than 20% of S&P 500 shares by 2017, up from 5% in 1998.

The trend has generated debate about corporate governance and competition, including whether common ownership reduces competitive pressure when the same investors hold interests in rivals. “The question has been: are these more concentrated investors making firms do stuff that is deleterious?” Prof. Bombardini said.

“On the one hand, you can imagine that these concentrated institutional investors are taking away the free-rider problem where you invest in a company but have no incentive to monitor it,” she added. “But most people are concerned about the opposite problem – the fact that these concentrated investors collude could make firms collude in terms of pricing.”

Prof. Bombardini and her co-authors – UC Berkeley colleague Francesco Trebbi, Marianne Bertrand from the University of Chicago Booth School of Business, Raymond Fisman from Boston University, and Eyub Yegen from Hong Kong University of Science and Technology – look beyond the effect on companies’ commercial behaviour. Their paper, Investing in Influence: Investors, Portfolio Firms, and Political Giving, asks whether institutional investors also change how the companies they own participate in politics.

A natural experiment in influence

Many asset managers are described as passive investors because their funds track share market indices rather than selecting companies individually. But passivity in stock selection does not necessarily mean passivity in exercising ownership power.

“The fact that you have this concentrated institutional investor influence over these firms, does it make firms behave differently in terms of their political activities?” Prof. Bombardini asked.

"We never have a smoking gun, but when you have more institutional ownership, you actually give less to politicians who are relevant to the current business"

MATILDE BOMBARDINI

The researchers studied US institutional shareholdings, political action committee (PAC) donations and lobbying between 1980 and 2018, examining what happened after an investor acquired at least 1% of a company. Following an acquisition, the political activity of the investor and portfolio company began to converge. In the researchers’ preferred specification, the probability that a company donated to a politician already supported by its investor increased by 31%.

That correlation alone would not demonstrate influence. Investors and companies might support the same politicians because they operate in the same industry, are based in the same region or share legitimate commercial interests.

To get closer to causation, the researchers examined acquisitions prompted by companies' entry into a stock market index. Funds tracking an index such as the Russell 2000 must acquire new entrants, making an existing political alignment less likely to explain the purchase.

The convergence in political giving remained, strengthening the case that the investor relationship, rather than shared commercial interests, drives the change. The evidence also suggests that the company follows the investor, rather than the reverse. Investors’ donations were relatively stable, while portfolio companies altered their giving after an acquisition and moved towards the investor’s pre-existing pattern.

Two explanations could account for the change. An investor might be improving a company’s political strategy, directing its donations towards politicians who can help increase profits and firm value. Alternatively, an influential investor might use portfolio companies to extend the reach of its own political preferences.

Learn more: The democracy seesaw: Why experts fall as populists rise

Prof. Bombardini said the evidence points towards the second explanation. “Obviously, we never have a smoking gun, but when you have more institutional ownership, you actually give less to politicians who are relevant to the current business.”

US companies commonly give to congressional committee members overseeing their industries. A bank has an obvious reason to cultivate the financial services committee; a healthcare company may support legislators responsible for healthcare policy.

Prof. Bombardini and her colleagues found that as institutional ownership increased, companies gave more overall but less to politicians sitting on committees relevant to their businesses. “What happens is that when institutional investor ownership of your firm increases, you give more in general, but you give less to the relevant committees,” she said. “You give to committees that you don’t really care about.”

When management needs investor support

The shift is difficult to reconcile with a straightforward profit-maximisation strategy. It was also stronger among privately held institutional investors, where ownership and control are more concentrated, and among investors whose existing donations were more partisan.

Portfolio companies’ donations moved closer not only to those of the institutional investor, but also to the personal giving of the investor’s employees. And where an investor obtained a seat on the company’s board – providing a more direct avenue for influence – the alignment was stronger again.

Companies appeared particularly responsive when their management needed shareholder support. The effect increased when a company faced contentious shareholder proposals or a serious environmental, social and governance controversy. “There’s an incentive whenever management is in some kind of trouble, because they don’t want the institutional investors to vote against them,” Prof. Bombardini said.

The PAC contributions studied are small beside the vast sums now channelled through US super PACs. Prof. Bombardini presented them as an indicator of political alignment rather than a complete measure of influence.

Scale nevertheless matters. An institutional investor may own significant stakes in dozens of companies. Applying the observed effect across the average investor’s portfolio, the researchers estimate that portfolio-company giving amplifies an investor’s political voice by around 63% relative to its own donations.

Political influence exercised by many companies may therefore reflect the preferences of a much smaller group controlling large pools of capital.

Market power is political power

Prof. Bombardini’s paper examines political influence expressed through donations and lobbying. Another workshop paper asked whether firms need to spend political money at all.

UNSW Professor of Politics and Economics and Resilient Democracy Lab co-director Gabriele Gratton presented Market Power Is Power, written with ETH Zurich Professor Barton Lee. It argues that market power can itself produce political power, without lobbying, campaign contributions or persuasion.

The mechanism is what the researchers call a “political hold-up problem”. Voters cannot bind future voters to a regulatory decision, while firms make investments in products and technologies that are difficult to reverse. A dominant firm can therefore develop a product in a way that changes the incentives voters face when regulation is later reconsidered.

A widely used platform may impose social costs but also become valuable to millions of consumers. If regulation raises its price or reduces its availability, voters may oppose rules they would have preferred before becoming dependent on it. Market share, mark-ups and the ability to pass on regulatory costs then become sources of political power.

“In market democracy, market power is power – it doesn’t just buy power,” Prof. Gratton said. “It is power because the lack of market discipline allows firms the slack needed to direct technological progress away from economic goals and towards political goals.”

The implication is that concentrated markets may underperform twice: politically, because dominant firms can avoid unwanted regulation; and economically, because technological choices are directed partly towards protecting political advantage rather than producing the greatest social value.

The morning’s third paper examined a more personal channel – and the institutions that might constrain it. University of Melbourne and Northwestern University economist Dr Kieu-Trang Nguyen presented Power, Scrutiny, and Congressmen’s Favouritism for Friends’ Firms, written with Professor Quoc-Anh Do from Monash University, Dr Yen-Teik Lee from Shanghai University of Finance & Economics and Associate Professor Bang D. Nguyen from the University of Cambridge Judge Business School.

"In market democracy, market power is power – it doesn’t just buy power"

GABRIELLE GRATTON

The researchers asked whether gaining political office necessarily increases a politician’s capacity to favour connected businesses. Studying close US congressional elections, they compared firms whose directors had been university classmates of narrowly successful candidates with firms connected to candidates who narrowly lost.

Counterintuitively, a candidate’s victory reduced the stock market value of former classmates’ firms by 3.2% over the following week. The researchers argue that while a higher office increases a politician’s power to confer favours, it also brings greater scrutiny and career risk. Politicians may therefore reduce quid-pro-quo assistance to connected firms. The effect varies with scrutiny, political power, company governance and the strength of the connection, and diminishes as politicians’ career concerns fade.

Together, the three papers traced political power through ownership, market concentration and personal networks, while Dr Nguyen’s findings showed how scrutiny can limit its exercise.

From evidence to electoral reform

The research presented at the workshop is grounded in the US and does not establish that the same mechanisms operate identically in Australia. The US system places greater emphasis on individual candidates and congressional committees, whereas strong political parties play a more powerful role in Australia’s parliamentary system.

Prof. Dixon raised that difference during the workshop, asking whether Prof. Bombardini’s result would be weaker in a parliamentary democracy, or whether influence would instead travel through parties, lobbying, industry organisations and less visible forms of political engagement.

Even so, the studies provided the workshop with a broader evidence base for examining Australian law. The afternoon sessions brought legal and political perspectives on campaign finance before participants considered future regulation and worked directly on Commonwealth electoral finance laws.

Donation caps and disclosure requirements address money that governments can identify, attribute and place on a register. Yet the discussion showed that political influence can also be embedded in relationships between investors and companies, in concentrated markets and consumer dependence, and in personal connections between politicians and businesses. Some of those mechanisms may never produce an unusually large donation.

It also showed that institutions matter. Dr Nguyen’s research suggests scrutiny can deter politicians from favouring connected firms, even as their formal power increases. Transparent and constitutionally defensible rules can likewise make it harder to purchase access or overwhelm political competitors. But electoral-finance law governs only part of the system through which economic power becomes political power.

Australia’s immediate challenge is to constrain big money without allowing incumbent parties to turn integrity laws into barriers against new competitors. Beyond that lies a harder question: even if lawmakers find the right constitutional balance, will the resulting rules capture how political influence actually moves?

For the Resilient Democracy Lab, the gap between the law on the books and power in practice is precisely where its interdisciplinary research is directed, and where bringing economists, lawyers, regulators and integrity advocates into the same conversation is most likely to shape the rules that follow.