Corporate Political Activity and Firm Performance: The Moderating Effects of International and Product Diversification

Abstract

Prior research has found that corporate political activity (CPA) can both positively and negatively impact firm performance. Combining agency theory with the resource-based view, we examine the relationship between domestic lobbying (a key form of CPA) and firm performance by explicating the moderating effects of international and product diversification. We argue that expansion into international and product markets increases a firm's resources and reduces agency costs in domestic lobbying. Our results, based on a sample of 737 firms, show that lobbying is positively associated with performance for firms that are diversified in both international markets and along product-lines; whereas lobbying is counter-productive for purely domestic and undiversified firms. Our results contribute to the literature on the firm performance implications of corporate political activity by highlighting the roles of international and product diversification.