Lobby Resources and Economics of Scope: an Analysis on M&as

Abstract: This paper investigates the conditions under which political capabilities can provide a source of competitive advantage for diversified firms. We argue and find that political capabilities attached to one business unit are more likely to provide a competitive advantage to another business unit within the same firm when both business units do not share any other strategic resource. Empirically, we alleviate endogeneity concerns by employing a matching strategy that compares sales growth of targets in successful acquisition versus growth rates of targets in unsuccessful acquisitions. We find empirical evidence consistent with our hypotheses. Political capabilities of the acquirer firm seem to help the sales growth of the target especially for unrelated acquisitions. Our results seem to be driven by the fact that political capabilities of the acquirer improve access to public procurement contracts for targets.