Strategic Risk and Lobbying: Investigating Lobbying Breadth as Risk Management

Abstract

Despite many studies investigating how lobbying expenditures enhance performance outcomes, limited attention has been given to understanding the underlying mechanisms driving firm lobbying behaviors—and, particularly, where firms target their lobbying expenditures. We argue lobbying breadth serves as a risk management strategy to both hedge against possible government intrusion and minimize disapproval of firm actions from government officials. As such, we posit firms’ strategic risk will positively relate to breadth of lobbying firms’ target. Further, if lobbying breadth serves as risk management strategy, then other aspects that affect decisions about the amount of risk protection a firm may need should also affect this relationship. We argue that CEOs’ ownership and firms’ political uncertainty may exacerbate exposure from firm risk taking to government actions, thus strengthening the insurance relationship. Similarly, we argue available slack, as a form of internal insurance against government actions, will weaken the relationship between strategic risk taking and lobbying breadth. We find support for most of our arguments in a sample of U. S. manufacturing firms. This research extends understanding of lobbying beyond the predominant focus on expenditures and securing beneficial outcomes. Exploring how lobbying breadth serves an important risk management role also offers insights into firm nonmarket strategy.

How and Why? A Review of Corporate Political Activity Predictors and Actions

“…Favorable internal and external characteristics will decrease a firm’s political transaction costs. While the environment might influence how firms engage in CPA (Brown, Manegold, & Marquardt, 2020), government risks have been found to be especially important in influencing firm CPA (Abdurakhmonov et al, 2021). When government risks are perceived to be high, through public political risk and home government relations, firms will attempt to evade risk with the host government (De Villa, Rajwani, Lawton & Mellahi, 2019).…”

“…At this point, it appears that researchers have not taken full advantage of this publicly available data, although there are some notable exceptions. Abdurakhmonov et al, (2021), for example, investigated where firms target their lobbying expenditures. They found that broadly lobbying across various lobbying agencies and legislative acts can mitigate political risks.…”

Untangling the role of CEOs' political ideology in the provision and inclusiveness of work–family policies: a multi-level conceptual model

“…Although organizations engage in political activities (e.g. donations, lobbying; Abdurakhmonov et al, 2021) to promote their interests, the political activities of managers constitute an embodiment of their personal beliefs and values (Burris, 2001). Consequently, it can be inferred that the political ideology of a CEO is distinct from the political orientation of the organization.…”

“…Although organizations engage in political activities (e.g. donations, lobbying; Abdurakhmonov et al. , 2021) to promote their interests, the political activities of managers constitute an embodiment of their personal beliefs and values (Burris, 2001).…”

Insider lobbying and government contracts: The moderating role of firm size

“…The breadth of a firm's lobbying reflects "the extent of government activities or entities the firm is attempting to influence," while the depth of its lobbying is "concentrated on a limited number of relationships that can be exploited" (Ridge et al, 2017(Ridge et al, , pp.1139(Ridge et al, , 1146. Although researchers are paying increased attention to lobbying breadth and depth (Abdurakhmonov et al, 2021), Ridge et al (2017Ridge et al ( , p.1158 highlight that "there is much opportunity for future research to further develop and examine these dimensions" of lobbying. Drawing on theories of social capital, we inquire into the breadth and depth of insider lobbying by investigating the extent and number of direct meetings that firms hold with key political actors and the value of the contracts awarded to companies by the UK's Ministry of Defence (MOD), along with the moderating effects of firm size on that relationship.…”