Firm‐level political capabilities and subsequent financial performance

• DOI: http://doi.org/10.1002/pa.1592
• Author: Richard S. Brown
• Date: 01 August 2016
• Published date: 01 August 2016

■Academic Paper

Firm-level political capabilities and

subsequent financial performance

Richard S. Brown*

Department of Management, Pennsylvania State University, Middletown, Pennsylvania, USA

While there is a robust literature on corporate political activity, scholars have not adequately framed these activities as

being part of a strategy to garner political capabilities. In this paper, we incorporate political capabilities and argue

that those firms that more intensely commit resources to political activities have associated subsequent performance

benefits. In a sample of 87 Fortune 500 firms from 2005 to 2011, we find that both political action committee and lob-

bying intensity were associated with higher return on invested capital and return on assets after controlling for other

factors. Additionally, we find support that the cumulative effect of political action committee and lobbying intensity

on performance is also significant. Finally, we moderate the main effects with industry concentration and find that

returns are greater in more consolidated industries. Copyright © 2015 John Wiley & Sons, Ltd.

INTRODUCTION

A major tenet in the management literature revolves

around the attainment of competitive advantage in

a population of heterogeneous firms. The dominant

theoretical lens for such a posture is the resource-based

view (RBV) of the firm, made notable by Penrose

(1959), Wernerfelt (1984), Barney (1991), and Peteraf

(1993). Accor ding to th e RB V, organiz atio ns th at

possess idiosyn cratic strategi c resources are pre-

dicted to earn a competitive advantage vis-à-vis

rivals. This adva ntage has been asso ciated with

superior performance, as firms that out-compete

rivals have the ability for rent extraction in imper-

fectly competitive markets (Makadok, 2001). Recent

scholarship has proposed and tested relationships

between a number of specific capabilities and subse-

quent performance.These include marketing capabil-

ities (Ritter, 2006), technological capabilities (Kotha

et al., 2011), and alliance formation capabilities

(Rothaermel & Deeds, 2004).

The bases for the aforementioned capability types

lie in competition in the marketplace through

superior resources and routines that disallow rivals

from extracting rents. Another space where firms

may compete is in the non-market (Baron, 1995), a

term most commonly used to denote the public pol-

icy arena (Boddewyn, 2003). Therefore, if firms can

establish a capability for market actions, logic

would also dictate that they can establish one for

non-market actions. This is herein referred to as a

political capability, a concept that has been fairly

neglected in both the literature on corporate political

activity (CPA) and the literature on capability types.

This paper’s main contribution is in theoretically

integrating these two concepts while also empiri-

cally testing the capability–performance relation-

ship found so prevalently in the RBV literature

(Newbert, 2007).

Many CPA scholars havefocused on the character-

istics of firms that employthese types of activities, as

well as their immediate industry surroundings. For

example, scholarshave found that firm size (Hillman,

Zardkoohi, & Bierman, 1999), the prevalence of

blockholders (Hadani, 2012), the levels of sales to

the government (Hart, 2001), industry concentration

(Grier et al., 1991), regulatory intensity (Stigler, 1971),

foreign status (Kostyaev,2012), and ownership disper-

sion (Ozer & Alakent, 2013) all have a relationship

with a firm’s propensity to be politically engaged.

*Correspondence to: RichardS. Brown,Departmentof Management,

Pennsylvania State University, 777W. Harrisburg Pike, Middletown,

PA 17057, USA.

E-mail: rsb24@psu.edu

Journal of Public Affairs

Volume 16 Number 3 pp 303–313 (2016)

Published online 16 December 2015 in Wiley Online Library

(www.wileyonlinelibrary.com) DOI: 10.1002/pa.1592

Copyright © 2015 John Wiley & Sons, Ltd.