Corporate Political Strategy in Contested Regulatory Environments

Abstract: We examine how firms strategically manage opposition from organized stakeholders in regulatory processes. As stakeholder opposition in regulatory arenas increases, we argue that firms invest more in developing support from politicians who oversee regulators. We find support for our predictions in an analysis of electric utilities’ campaign contributions to politicians in response to expected stakeholder contestation of mergers and acquisitions subject to regulatory approval. Using a two-way fixed effects model, we estimate firms made 27% larger contributions when the count of stakeholders who contested the firm in prior regulatory hearings was one standard deviation greater than the mean. Our findings contribute to non-market strategy research by providing evidence that firms seek to offset the impact of stakeholder opposition on regulator decisions by cultivating political support.