The Reputational Effects of Corporate Political Activities: An Empirical Research

Abstract

Firms often engage actively in political practices with non-market partners with the aim of achieving positive organizational outcomes. However, in relation to the amount of corporate political activities (CPA) that firms engage in, corporate political activities may result in negative reputation and prestige outcomes such as “employees’ perception of how outsiders see their firm” or perceived external prestige (PEP) on stakeholders in the long run. This is a known suggestion arising from the nonmarket strategy research but in our best knowledge, it has not been tested empirically so far. Therefore, this study aims to explore the reputational effects of corporate political activities by looking at PEP on a sample of 397 employees from 96 Turkish listed firms. The data collected through a self-administrated questionnaire underwent to regression analyses. The results show that, CPA had an inverted U-shaped effect on firm performance, indicating that only a moderate level of CPA may improve PEP. It is concluded that excessive political actions and over embeddedness may tarnish PEP of employees which is critical to financial performance and long-term competitiveness.