When the well is full, it will run over: the double-edged sword effect of corporate lobbying activities on firm performance

Abstract

Purpose-How much variance in firm performance can be attributed to firms' corporate political activities (CPA)? Under what conditions does CPA contribute to firm performance? To theorize and empirically tackle these questions, we build on the resource-based view (RBV) to theorize how CPA might improve or hinder firm performance, and specifically examine the direct relationship between firms' investments in lobbying activities and their performance. We also expect firm growth rate to moderate the relationship between lobbying and performance. Design/methodology/approach-We empirically test our hypotheses using large-scale longitudinal panel data from publicly traded US firms from 2008 to 2018. Findings-Our analyses support our predictions of the double-edged sword effect of lobbying on firm performance. Moreover, our results show that this effect is steeper for firms with higher growth rates. Originality/value-Our study contributes meaningful insights to strategy scholarship on the influence of nonmarket strategies, highlighting the relevance of firm-specific conditions in shaping the performance outcomes of such strategies. In particular, we make a contribution by identifying a nonlinear relationship between lobbying and firm performance, which is amplified in fast-growing firms compared to stagnant ones.