Corporate Political Activity as Competitive Action

Abstract

This research seeks to understand the relationship between a firm’s market and nonmarket strategy by examining whether firms respond to performance shortfalls in the market environment by engaging in greater levels of corporate political action in the nonmarket environment. Building on arguments from Austrian economics, we argue that corporate political activity represents a competitive action available to firms seeking to gain competitive advantage. Our findings suggest that firms are more likely to engage in nonmarket strategic behaviors when they experience market share erosion. That is, we find that firms are likely to engage in greater levels of federal lobbying and are more likely to promote internal lobbyists to levels of greater authority in years in which they lose market share. These findings, based on 27 years of data from large U.S. firms, contribute to research on corporate political activity and competitive dynamics.