Does Nationalist Rhetoric Help Politicians Raise Campaign Contributions?

Abstract

Although research has paid significant attention to organizational reactions to formal political pressures, it remains to be understood how organizations react to political influence that is wielded through informal institutions. We argue that regulatory constraints on formal institutions increase political attention to informal institutions: social norms that facilitate the trading of favors. Politicians elicit informal favors from organizations through the use of nationalistic rhetoric. However, the social nature of informal institutions makes political influence more critical for firms that are strongly embedded in the local environment, yielding a distinction between the responses of domestic and foreign firms. A longitudinal state-wise examination of 476 firms in India showed that when institutional formalization encouraged political contests, there was an increase in corporate campaign contributions. This increase corresponded to politicians’ use of nationalistic rhetoric. While the rhetoric contributed to domestic firm contributions, foreign firms that were politically more engaged in the past became relatively insignificant. These findings highlight how informal institutions facilitate political influence on organizations, and in turn, how organizations inadvertently reinforce social fractures that redefine those very institutions.