The More You Give, the More You Get? The Impact of Corporate Political Activity on the Value of Government Contracts

• DOI: http://doi.org/10.1111/basr.12122
• Date: 01 September 2017
• Author: Michael Hadani,Natasha Munshi,Kim Clark
• Published date: 01 September 2017

The More You Give, the More

You Get? The Impact of

Corporate Political Activity on

the Value of Government

Contracts

MICHAEL HADANI, NATASHA MUNSHI, AND KIM CLARK

ABSTRACT

Firms have been relying on corporate political activity

(CPA) to achieve access and to affect public policy change

for decades. Most research on CPA and public policy out-

comes has implicitly assumed that access afforded by

CPA results in an either- or (dichotomous) policy outcome

such as votes or election outcomes. Based on recent

research on how CPA can be a strategic signal to govern-

ment agencies, however, it is possible that CPA may in

fact, have a linear association with public policy outcomes

as opposed to merely a dichotomous one, and we explore

this relationship in the unique public policy context of

government contract awards. We specifically analyze how

higher levels of CPA impact the financial value of govern-

ment contracts awarded to firms. Utilizing the S&P 1500

Michael Hadani is an Associate Professor at School of Economics and Business Administration,

Saint Mary’s College of California, Moraga, CA. E-mail: mh21@stmarys-ca.edu. Natasha Mun-

shi is an Assistant Professor at School of Economics and Business Administration, Saint

Mary’s College of California, Moraga, CA. E-mail: nvm2@stmarys-ca.edu. Kim Clark is an

Assistant Professor at School of Economics and Business Administration, Saint Mary’s College

of California, Moraga, CA. E-mail: kc21@stmarys-ca.edu.

V

C2017 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by

Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford OX4 2DQ, UK.

Business and Society Review 122:3 421–448

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sample for 16 years (1997–2012) we find that CPA has a

one to one association with the value of contract awards,

indicating that CPA and public policy outcomes can be

linked in ways that motivate firms to continuously invest

in CPA, to maximize their political rents. We discuss the

theoretical and practical implications of this finding in

light of extant research on CPA and its direct impact on

public policy outcomes.

INTRODUCTION

Corporate political activity (CPA) refers to efforts aimed at

achieving access to public policy makers, to advance corpo-

rate objectives (Hillman et al. 2004). CPA is multifaceted

and reflects tactics such as donations to politicians’ political action

committees (PAC) and lobbying, participation in trade associations,

and testimony to congress (Hillman et al. 2004; Rajwani et al.

2015) to name a few. While CPA is a popular albeit controversial

(Barley 2007; LaPira 2014) non-market strategy (Baron 1997,

2001), the nature and consequences of such policy access are not

well understood. While CPA does not directly impact firm out-

comes, its direct impact is on public policy outcomes; if the latter

are achieved, then their impact on the firm and its industry may

advance firm performance (Lux et al. 2011). While there is evidence

to suggest that CPA via its impact on specific public policy out-

comes (for instance votes or regulatory decisions), can provide

firms with a return on their political investments, such returns are

by no means guaranteed (Aggarwal et al. 2012; Hadani et al.

2016). Yet, what exactly are the nature and the consequences of

such public policy access?

One can divide scholarship on the direct effect of CPA on public

policy outcomes into four broad public policy outcome categories.

The first category examines voting outcomes (e.g., Ansolabehere

et al. 2003; Cohen and Hamman 2003; Stratmann 2002; Wawro

1991), the second, examines election outcomes (e.g., Alexander

1990; Milyo et al. 2000), the third examines regulatory outcomes

(e.g., Fisch 2005; Hansen and Prusa 1996; Weingast 1984) and the

fourth examines non-regulatory government agency outcomes (e.g.,

422 BUSINESS AND SOCIETY REVIEW