Title

Governance mechanisms and corporate political activity: Ownership considerations in a non-market context

Date of Award

6-2006

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Management

Advisor(s)

Ravi Dharwadkar

Keywords

Governance, Corporate political activity, Ownership, Nonmarket strategies

Subject Categories

Political Science | Strategic Management Policy

Abstract

Corporate political activities (CPA) represent an important non-market strategy for many large firms, providing them with access to policy makers. This access, in turn, can benefit firm objectives. Much of the extant literature on the topic focuses on the impact of industry related factors on CPA, ignoring the impact of firm level dynamics. Yet, recent studies have shown that firm level dynamics significantly impact firms' CPA, beyond existing models. One significant firm level dynamic that affects firm strategic decision-making is a firm's governance structure. Specifically, institutional equity ownership, blockholder ownership, founding family ownership, among other governance mechanisms, have been shown to affect firms' strategic decision-making, yet have been absent from the CPA literature. This absence is problematic as it not only ignores the strong influence that such forces exert on firms, but also results in a partial picture of the antecedents of CPA. Thus, in this dissertation I explore the impact of governance mechanisms on firms' CPA and firms' choice of specific CPA approaches. Based on the long-term and insurance related benefits of CPA, it was hypothesized that institutional investors and other blockholders would favor firms' CPA, as would executive bonding mechanisms, such as long-term compensation. Further, based on the distinction between specific approaches to CPA, more long-term versus a more short-term CPA, it was hypothesized that long-term oriented institutional investors would prefer long-term CPA versus the strategic preferences of short-term oriented investors. In contrast to these predictions it was found that institutional investors' holdings were negatively associated with firm CPA, while long-term executive compensation was positively associated with it. These findings are discussed with regard to the nature of firms' CPA and the relationship of the firm to its external constituents.

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