Firms’ Strategic Use of Political Connections

Nan Jia (University of South California)
Bo Zhao (University of Hong Kong)
Jiangyong Lu (Peking University)
Wei Zheng (Peking University)

Abstract : This paper examines how a firm’s political connections in a location influence the firm’s choice of the location to establish new subsidiaries. First, using political connections incurs a cost in that politicians can demand connected firms to engage in economically-inefficient but politically-desirable tasks such as hiring superfluous labor. As a result, the firm is least likely to choose a politically connected location that also faces the economic conditions, such as higher unemployment or higher fiscal deficits, that commonly propel politicians to make such demands. Second, more “outside options” of obtaining the economic benefits conferred by political connections, such as from more developed product and factor markets, lowers the importance of choosing a politically connected location. Therefore, how firms utilize their political connections is highly context-dependent.

The Political (dis)economies of Csr

Aseem Kaul (University of Minnesota)
Jiao Luo (University of Minnesota)

Abstract : We argue that the use of Corporate Social Responsibility (CSR) as a source of competitive advantage implies the exclusion of at least some potential beneficiaries from the private provision of public goods. While such exclusion may be welfare-enhancing if private provision is transient and leads to greater state or non-profit provision once the demand for the public good has been established, it may also be welfare-destroying in so far as private provision crowds out state provision, leaving those who are excluded worse off than they were before. In such cases, CSR may be a source of political polarization, with the interests of those who are served by CSR increasingly diverging from the interests of those whose concerns are of no interest to profit-maximizing firms.

Into the Dark: Shifts in Corporate Political Activity After a Reputational Threat

Mary-Hunter McDonnell (Wharton, University of Pennsylvania)
Timothy Werner (McCombs, UT-Austin)

Abstract : Using a database on social movement boycotts of corporations, we examine how firms alter their political activities in the wake of a reputational threat. We show that boycotts lead to significant reductions in the amount of targets’ political action committee campaign contributions and simultaneous increases in targets’ CEOs’ personal campaign contributions, as well as targets’ lobbying expenditures. We argue that these patterns represent a shift toward more covert forms of political engagement that present new problems for activists and shareholders seeking to monitor corporate political activity.