Nonmarket Strategy Performance: Evidence from U.S. Electric Utilities

Abstract

This paper develops and tests a theory of the performance determinants of a firm's nonmarket strategy in shaping public policy outcomes. Building on the concept of political market attractiveness, we argue that nonmarket performance is influenced by both the characteristics of a firm's regulatory and political environment, especially rivalry among interest groups or politicians, and by internal capabilities that enable a firm to mitigate political transaction costs. Using data on regulatory filings for rate increases made by U.S. electric utilities over a 13-year period, we find empirical support for our approach.

Top management teams and corporate political activity: Do top management teams have influence on corporate political activity?

“…Although there is a growing body of research on the effectiveness of political activity (Bonardi et al, 2006;Faccio, 2006Faccio, , 2007Fisman, 2001;Hillman et al, 1999), very little is known about the potential benefits of political activity. Future research could consider whether TMT involvement in political activity will benefit firms to create value and improve overall performance.…”

The CEO as chief political officer: Managerial discretion and corporate political activity

“…On the positive side of the argument, some empirical studies show that CPA can result in obtaining government subsidies (Haley & Schuler, 2011), lowering effective tax rates (Richter, Samphantharak, & Timmons, 2008), attaining trade protections (Drope & Hansen, 2004), or receiving permission for rate increases by US electrical utilities (Bonardi, Holburn, & Vanden Bergh, 2006; see also Hillman, 2005).…”

“…The inclusion of a lagged measure of performance is critical as many studies in the area of CPA find that a major predictor of performance is lagged performance (for example, Bonardi et al, 2006).…”

The World of Regulatory Influence

“… See Rosston et al (2008),Bonardi et al (2006),Schuler et al (2002),Kaserman et al (1990) andSalamon and Siegfried (1977) as examples.2 Becker (1983, p. 375) states explicitly that "I shall not try to model how different political systems translate the activities of pressure groups into political influence." 3 SeeNorth (1990) and subsequent literature.…”