A study of firm motivations to invest in strategic political management

Firms are believed to engage in strategic political management (SPM) in attempts to shape public policy in favorable ways and enhance their economic returns. Extant research has broadly considered the motivations leading to corporate political activity, focusing on the effects of market power using metrics such as firm size and industry concentration to investigate this phenomenon. More recently, scholars have proposed a more nuanced perspective on the subject, suggesting that different types of SPM may exist. For example, both Baysinger (1984) and Oliver and Holzinger (2008) have distinguished between corporate political strategies designed to maintain or alter the firm’s political environment. In this study, I seek to more critically explore this distinction. I propose that at least two different types of SPM exist: defensive SPM, which is directed at protecting existing competitive advantage, and offensive SPM, which is focused on creating new forms of competitive advantage. I further propose that the threats and opportunities in a firm’s regulatory environment are important motivators of these different types of SPM. In the context of the natural gas industry in Texas from 1999-2009, I find that the degree of regulatory uncertainty in the firm’s political environment influences it to engage in defensive SPM. I also find that the size of the firm’s asset inventory influences it to engage in offensive SPM. Furthermore, I find that regulatory uncertainty negatively moderates the relationship between the size of a firm’s asset inventory and its likelihood of investing in offensive SPM.