Formal Versus Informal Channels: How Firm Size Affects Corporate Political Activities
Abstract: Using a novel and global database, this paper undertakes a systematic analysis of the approaches and determinants of firms’ corporate political activities. The empirical results suggest that large firms are more likely to utilize formal channels (i.e., lobbying), whereas small firms are more likely to utilize informal channels (i.e., bribes) for seeking policymaking influence. These nonmarket approaches are conditioned, however, by the extent of competition in the market environment and the consistency and predictability of procedures in the regulatory environment in which firms operate in. Nonmarket strategy implications that follow from this refined understanding are developed and discussed.