Democracy's political ideology and corporate political activities: The role of state capacity, firm size, and capital location

Abstract

Firms conduct corporate political activities (CPA) to influence policy-makers, but how does the political ideology of the government affect CPA? Based on survey data of 15,002 firms from 29 democratic countries, we show that firms in countries with right-leaning governments are more likely to be involved in CPA, since these governments are perceived to be more receptive to firmś demands and adopt business-friendly policies. We also find that the relationship between political ideology and CPA is contingent on country-level and firm-level characteristics. Specifically, we find that the relationship is weaker in more capable democracies because state capacity insulates policymakers from external influences, reducing the propensity of firms to engage in CPA. Besides, we find that the relationship between political ideology and CPA is stronger when firms are larger or are located in the capital city, given the importance of resource availability as well as frequency of interactions with authorities.