Incidence of Activist Actions on Politically Connected Companies: Examining a ‘Cost’ of Connection

Abstract

Despite both politicians and activists residing in the non-market sphere, research at their interface has been scarce. Our understanding of the dynamics of the firm’s relationship with these non-market stakeholders is inadequate. This study partly addresses this void by arguing that the presence of board political connections (BPC) results in the firm being preferred as a target by activists. Two mechanisms are suggested: i. association with politicians imposes higher normative expectations on the firm, resulting in it being held more accountable for violations, ii. violations by such firms generate higher media interest, thereby drawing the attention of other activists – resulting in the lowering of the costs of mobilization, as well as the risks of reprisal for the activist(s) involved the action(s). For empirical analysis, I utilize, among others, a novel dataset covering activist actions from the years 2010 to 2016. I restricted my analysis to firms located in the US and employed a variety of identification techniques to alleviate endogeneity concerns. The results reveal that politically connected firms are more likely to receive activist actions and face greater number of actions. Moreover, actions on such firms are likely to elicit harsher criticism from activists and also generate higher media coverage.