How Do Political and Nonpolitical Ties Affect Corporate Regulatory Participation? A Regulatory Capture Perspective

Abstract

This study extends regulatory capture theory to investigate how and to what extent a firm’s political and nonpolitical ties jointly influence corporate regulatory participation. In the context of regulatory standards setting, although firms with political ties are better able to promote firm standards into industry regulations, it remains unclear whether the coexistence of firms’ nonpolitical ties (i.e., university ties and interlocked firms in our study) is more or less likely to reduce the effect of political ties. Although corporate leaders with political and nonpolitical ties may provide complementary resources, they may follow different mechanisms to drive firm actions. We, thus, argue that nonpolitical ties likely reduce the effect of political ties on regulatory standards setting. Using a sample of public manufacturing firms in China, we find evidence that supports our predictions. Our study contributes to the regulatory capture literature by redirecting attention to the dynamics of political versus nonpolitical ties.