Congressional certification: How firms use former Congress members to lobby on their behalf

• Date: 01 November 2018
• Published date: 01 November 2018
• DOI: http://doi.org/10.1002/pa.1711
• Author: Richard S. Brown

ACADEMIC PAPER

Congressional certification: How firms use former Congress

members to lobby on their behalf

Richard S. Brown

Pennsylvania State University—Harrisburg,

Middletown, Pennsylvania, USA

Correspondence

Richard S. Brown, Pennsylvania State

University—Harrisburg, 777 W. Harrisburg

Pike, Middletown, PA 17057, USA.

Email: rsb24@psu.edu

This paper models the effect of firm‐level profitability (earnings before interest and

taxes and return on sales) against certification by former members of the U.S. Con-

gress. Although some scholars have studied certification, none have studied certifica-

tion in the public policy market as is done in the current work. Likewise, although

scholars have studied the effects of lobbying and political connections on firms' out-

comes, none have studied lobbying through former Congress members specifically.

The findings confirm that, after controlling for numerous factors, firms can use former

Congress members to effectively lobby and certify their intentions. Both firm‐level

earnings before interest and taxes and return on sales were significantly associated

with prior lobbying efforts by these former elected federal officials in several different

estimation techniques employed in the study.

1|INTRODUCTION

In the academic literature, certification is closely linked with firm‐level

reputational effects because the benefits derived from a successful cer-

tification campaign accrue in a similar fashion. As such, certification, as

a construct, has been enveloped into the reputation literature since its

inception because both are attempts to gain legitimacy and approval to

some degree (Petkova, 2016). The main difference, of course, is in the

way that firms try to derive benefits from each. Reputation, in its purest

form, is driven by internal forces and leads to medium‐to long‐term

intangible benefits (Castro‐Martinez & Jackson, 2017).

1

Certification,

although being somewhat mimetic of reputation, is more contractual.

It is an attempt to have another party signal the quality of the reputa-

tion that is caught in a web of asymmetrical information.

Although the literature on reputation is quite robust, the literature

on certification is actually quite limited. A logical question is, at the

firm level, how is certification effective? Megginson and Weiss

(1991) were one of the first academics to try to answer this question,

and they posited several conditions as a baseline. According to them,

certification is effective when (a) the certifying agent has reputational

capital, (b) the certifying target leases this capital, (c) the agent's repu-

tational capital is at stake, and (d) the value of this at‐stake capital

exceeds the highest one‐time payoff to the agent in the case of

miscertification. The literature on certification has primarily been the

work of finance scholars, who have studied its outcomes in the con-

text of venture capital (VC) and bond issuance, and of management

scholars, who have studied similar outcomes but have focused mainly

on executives' roles in certification. To date, however, there are no

papers that address the issue of certification behaviors of corporations

in the realm of public policy. This paper, in an attempt to address this

gap, models certification by studying firms' lobbying efforts by former

federally elected politicians.

An example of this phenomenon is seen in the 2011 attempted

takeover of T‐Mobile USA by AT&T. During this takeover attempt,

AT&T utilized a multifront lobbying campaign in order to win over

the approval of regulators, many of which were skeptical of the anti-

competitive results that would ensue if it were successful. AT&T hired

a number of lobbyists to negotiate its position, including six former

Congressmen. Although all of the six held influence, two were

extremely powerful senators that had recently left Congress—Trent

Lott and John Breaux (Brown, 2017). In addition to their powerful

positions (Lott was the Senate majority leader), they were also from

different political parties, giving AT&T advocacy in both houses of

Congress and both major political parties.

This paper, therefore, contributes to two literature streams

primarily. First, the current research adds empirical results to the rep-

utation and certification literature by estimating the benefits to certifi-

cation in a new and unique context. Second, this work contributes to

the burgeoning field of corporate political activity (CPA) research,

1

These benefits may include the dampening of negative press or outcomes as

evidence in crisis reputation studies, such as Choi and Lee (2017).

Received: 12 December 2017 Accepted: 26 February 2018

DOI: 10.1002/pa.1711

J Public Affairs. 2018;18:e1711.

https://doi.org/10.1002/pa.1711

© 2018 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/pa 1of8