Corporate Political Activity: Benefits, Costs, and Decision Making

Abstract

Corporate political activity (CPA) enables a firm to enjoy numerous benefits in terms of managing opportunities and threats. However, at the same time, CPA has a unique cost-feature where the possible benefits can spillover to other firms due to its characteristics as a collective good. Then, under what condition is a firm likely to weigh the benefits of CPA as more significant than its costs and decide to engage in it? In the context of product market, we apply the behavioral theory and an attention-based view and suggest that whether a firm weighs CPA’s benefit side or cost side is likely to depend on which types of aspiration level it relies on: product market performance that is below historical aspiration is likely to direct decision-makers’ attention to the benefits of CPA, thus facilitating a firm’s engagement in CPA, particularly corporate lobbying, as a way of searching for solutions. However, product market performance below social aspiration may direct their attention to the costs, thus hampering such a lobbying engagement. We also argue that the different mechanisms of historical and social aspirations are likely to be moderated by a firm’s dependence on the focal product market.