CEO Characteristics and Corporate Political Strategy: The Moderating Effects of CEO Duality
PDF

Keywords

Corporate political strategy
CEO
agency theory
upper echelons theory

How to Cite

CEO Characteristics and Corporate Political Strategy: The Moderating Effects of CEO Duality. (2023). Journal of Business Strategies, 40(2), 53-68. https://doi.org/10.54155/jbs.40.2.53-68

Abstract

By relying on upper echelons theory and agency theory, this study explores how CEO characteristics impact firms’ engagement in corporate political strategy (CPS). The current study proposes that depending on their CEOs’ tenure, firms have different interests and  incentives to make CPS investments. In addition, this study suggests that CEOs’ personal involvement in political activity affects their firms’ CPS investments. CEOs’ personal involvement in political activity could indicate agency problems between shareholders and CEOs. To explore this agency problem further, this study also examines how CEO duality moderates the relationship between CEO characteristics and CPS. This study uses a sample of 416 pharmaceutical firms in the U.S. from the year 2000 ­– 2010. The results show that CEO tenure positively affects CPS. Furthermore, CEOs’ personal involvement in political activity also positively influences CPS. The results also reveal that CEO duality weakens the relationship between CEO tenure and CPS. 

PDF

References

Aggarwal, R. K., Meschke, F., & Wang, T. Y. (2012). Corporate political donations: Investment or agency? Business and Politics, 14(1), 1–38. https://doi.org/10.1515/1469-3569.1391

Aktas, N., Andreou, P. C., Karasamani, I., & Philip, D. (2019). Ceo duality, agency costs, and internal capital allocation efficiency. British Journal of Management, 30(2), 473–493. https://doi.org/10.1111/1467-8551.12277

Alakent, E., & Ozer, M. (2014). Can companies buy legitimacy? Using corporate political strategies to offset negative corporate social responsibility records. Journal of Strategy and Management, 7(4), 318–336. https://doi.org/10.1108/JSMA-04-2013-0028

Arlen, J., & Weiss, D. M. (1995). A political theory of corporate taxation. The Yale Law Journal, 105(2), 325. https://doi.org/10.2307/797124

Barber, B., & Diestre, L. (2019). Pushing for speed or scope? Pharmaceutical lobbying and Food and Drug Administration drug review. Strategic Management Journal, smj.3021. https://doi.org/10.1002/smj.3021

Barker, V. L., & Mueller, G. C. (2002). Ceo characteristics and firm r&d spending. Management Science, 48(6), 782–801. https://doi.org/10.1287/mnsc.48.6.782.187

Baron, D. P. (1995). Integrated strategy: Market and nonmarket components. California Management Review, 37(2), 47–65. https://doi.org/10.2307/41165788

Baysinger, B. D. (1984). Domain maintenance as an objective of business political activity: An expanded typology. The Academy of Management Review, 9(2), 248. https://doi.org/10.2307/258438

Bebchuk, L. A., & Jackson Jr., R. (2010). Corporate political speech: Who decides? Harvard Law Review. Retrieved November 28, 2022, from https://dash.harvard.edu/handle/1/11341911

Boeker, W. (1997). Strategic change: The influence of managerial characteristics and organizational growth. Academy of Management Journal, 40(1), 152–170. https://doi.org/10.2307/257024

Bonardi, J.-P., Holburn, G. L. F., & Vanden Bergh, R. G. (2006). Nonmarket strategy performance: Evidence from U.S. Electric utilities. Academy of Management Journal, 49(6), 1209–1228. https://doi.org/10.5465/amj.2006.23478676

Boyd, B. K. (1995). CEO duality and firm performance: A contingency model. Strategic Management Journal, 16(4), 301–312. https://doi.org/10.1002/smj.4250160404

Brown, L. W., Rasheed, A. A., & Bell, R. G. (2022). How and why? A review of corporate political activity predictors and actions. Group & Organization Management, 47(2), 440–484. https://doi.org/10.1177/10596011221085200

Cao, Z., Fernando, G. D., Tripathy, A., & Upadhyay, A. (2018). The economics of corporate lobbying. Journal of Corporate Finance, 49, 54–80. https://doi.org/10.1016/j.jcorpfin.2017.12.012

Combs, J. G., Gentry, R. J., Lux, S., Jaskiewicz, P., & Crook, T. R. (2020). Corporate political activity and sensitivity to social attacks: The case of family-managed firms. Family Business Review, 33(2), 152–174. https://doi.org/10.1177/0894486519899578

Dalton, D. R., Hitt, M. A., Certo, S. T., & Dalton, C. M. (2007). The fundamental agency problem and its mitigation. Academy of Management Annals, 1(1), 1–64. https://doi.org/10.5465/078559806

Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: Ceo governance and shareholder returns. Australian Journal of Management, 16(1), 49–64. https://doi.org/10.1177/031289629101600103

Epstein, E. M. (1969). The corporation in American politics. Prentice-Hall.

Faccio, M., Masulis, R. W., & McCONNELL, J. J. (2006). Political connections and corporate bailouts. The Journal of Finance, 61(6), 2597–2635. https://doi.org/10.1111/j.1540-6261.2006.01000.x

Finkelstein, S., &D’Aveni, R. A. (1994). Ceo duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37(5), 1079–1108. https://doi.org/10.2307/256667

Fralich, R. (2012). Do prestigious ceos take more risks? Journal of Managerial Issues, 232–249.

Fremeth, A., Richter, B. K., & Schaufele, B. (2016). Motivations for corporate political activity. In J. M. De Figueiredo, M. Lenox, F. Oberholzer-Gee, & R. G. Vanden Bergh (Eds.), Advances in Strategic Management (pp. 161–191, Vol. 34). Emerald Group Publishing Limited. https://doi.org/10.1108/S0742-332220160000034006

Gordon, S. C., Hafer, C., & Landa, D. (2007). Consumption or investment? On motivations for political giving. The Journal of Politics, 69(4), 1057–1072. https://doi.org/10.1111/j.1468- 2508.2007.00607.x

Greiner, M., & Lee, J. (2018). Why do businesses engage in corporate political activity? An agency theory perspective. Academy of Management Proceedings, 2018(1), 17640. https://doi.org/10.5465/AMBPP.2018.17640abstract

Greiner, M., & Lee, J. (2020). A supply-side approach to corporate political activity: Performance consequences of ideologically driven CPA. Journal of Business Research, 115, 25–37. https://doi.org/10.1016/j.jbusres.2020.04.038

Gupta, S., & Swenson, C. W. (2003). Rent seeking by agents of the firm. The Journal of Law and Economics, 46(1), 253–268. https://doi.org/10.1086/345579

Hadani, M., Bonardi, J.-P., & Dahan, N. M. (2017). Corporate political activity, public policy uncertainty, and firm outcomes: A meta-analysis. Strategic Organization, 15(3), 338–366. https://doi.org/10.1177/1476127016651001

Hadani, M., Dahan, N. M., & Doh, J. P. (2015). The CEO as chief political officer: Managerial discretion and corporate political activity. Journal of Business Research, 68(11), 2330–2337. https://doi.org/10.1016/j.jbusres.2015.03.046

Hadani, M., Munshi, N., & Clark, K. (2017). The more you give, the more you get? The impact of corporate political activity on the value of government contracts: Business and society review. Business and Society Review, 122(3), 421–448. https://doi.org/10.1111/basr.12122

Hadani, M., & Schuler, D. A. (2013). In search of el dorado: The elusive financial returns on corporate political investments: Financial returns on corporate political investments. Strategic Management Journal, 34(2), 165–181. https://doi.org/10.1002/smj.2006

Hambrick, D. C., & Fukutomi, G. D. S. (1991). The seasons of a ceo’s tenure. The Academy of Management Review, 16(4), 719. https://doi.org/10.2307/258978

Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. The Academy of Management Review, 9(2), 193. https://doi.org/10.2307/258434

Hart, D. M. (2004). "Business" is not an interest group: On the study of companies in american national politics. Annual Review of Political Science, 7(1), 47–69. https://doi.org/10.1146/annurev.polisci.7.090803.161829

Henderson, A. D., Miller, D., & Hambrick, D. C. (2006). How quickly do CEOs become obsolete? Industry dynamism, CEO tenure, and company performance. Strategic Management Journal, 27(5), 447–460. https://doi.org/10.1002/smj.524

Herrmann, P., & Datta, D. K. (2006). Ceo experiences: Effects on the choice of fdi entry mode*. Journal of Management Studies, 43(4), 755–778. https://doi.org/10.1111/j.1467-6486.2006.00610.x

Hillman, A. J., & Hitt, M. A. (1999). Corporate political strategy formulation: A model of approach, participation, and strategy decisions. The Academy of Management Review, 24(4), 825. https://doi.org/10.2307/259357

Hillman, A. J., Zardkoohi, A., & Bierman, L. (1999). Corporate political strategies and firm performance: Indications of firm-specific benefits from personal service in the U.S. government. Strategic Management Journal, 20(1), 67–81. https://doi.org/10.1002/(SICI)1097-0266(199901)20:1<67::AID-SMJ22>3.0.CO;2-T

Hou, W., Priem, R. L., & Goranova, M. (2017). Does one size fit all? Investigating pay–future performance relationships over the “seasons” of ceo tenure. Journal of Management, 43(3), 864–891. https://doi.org/10.1177/0149206314544744

Keim, G. D., & Zeithaml, C. P. (1986). Corporate political strategy and legislative decision making: A review and contingency approach. The Academy of Management Review, 11(4), 828. https://doi.org/10.2307/258400

Krause, R., Semadeni, M., & Cannella, A. A. (2014). Ceo duality: A review and research agenda. Journal of Management, 40(1), 256–286. https://doi.org/10.1177/0149206313503013

Lawton, T., McGuire, S.,&Rajwani, T. (2013). Corporate political activity: A literature review and research agenda: Corporate political activity. International Journal of Management Reviews, 15(1), 86–105. https://doi.org/10.1111/j.1468-2370.2012.00337.x

Li, M., & Yang, J. (2019). Effects of CEO duality and tenure on innovation. Journal of Strategy and Management, 12(4), 536–552. https://doi.org/10.1108/JSMA-04-2019-0049

Lux, S., Crook, T. R., & Woehr, D. J. (2011). Mixing business with politics: A meta-analysis of the antecedents and outcomes of corporate political activity. Journal of Management, 37(1), 223–247. https://doi.org/10.1177/0149206310392233

Martin, J. A., & Butler, F. C. (2017). Agent and stewardship behavior: How do they differ? Journal of Management & Organization, 23(5), 633–646. https://doi.org/10.1017/jmo.2016.72

Mathur, I., & Singh, M. (2011). Corporate political strategies: Corporate political strategies. Accounting & Finance, 51(1), 252–277. https://doi.org/10.1111/j.1467-629X.2010.00386.x

Mathur, I., Singh, M., Thompson, F., & Nejadmalayeri, A. (2013). Corporate governance and lobbying strategies. Journal of Business Research, 66(4), 547–553. https://doi.org/10.1016/j.jbusres.2012.01.003

Opensecrets. Org: Formerly titled center for responsive politics. (1999). Choice Reviews Online, 36(12), 36Sup–561–36Sup–561. https://doi.org/10.5860/CHOICE.36Sup-561

Ozer, M. (2010). Top management teams and corporate political activity: Do top management teams have influence on corporate political activity? Journal of Business Research, 63(11), 1196–1201. https://doi.org/10.1016/j.jbusres.2009.10.017

Ozer, M., & Alakent, E. (2013). The influence of ownership structure on how firms make corporate political strategy choices. Business & Society, 52(3), 451–472. https://doi.org/10.1177/0007650312466041

Ozer, M., & Lee, S.-H. (2009). When do firms prefer individual action to collective action in the pursuit of corporate political strategy? A new perspective on industry concentration. Business and Politics, 11(1), 1–21. https://doi.org/10.2202/1469-3569.1234

Ozer, M., & Markóczy, L. (2010). Complementary or alternative? The effects of corporate political strategy on innovation. Journal of Strategy and Management, 3(3), 252–272. https://doi.org/10.1108/17554251011064846

Rehbein, K. A., & Schuler, D. A. (1999). Testing the firm as a filter of corporate political action. Business & Society, 38(2), 144–166. https://doi.org/10.1177/000765039903800202

Reich, R. (2011). 1779 Toward a Political Theory of Philanthropy. In Giving Well: The Ethics of Philanthropy. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780199739073.003.0010

Richter, B. K., Samphantharak, K., & Timmons, J. F. (2009). Lobbying and taxes. American Journal of Political Science, 53(4), 893–909. https://doi.org/10.1111/j.1540-5907.2009.00407.x

Ridge, J. W., Ingram, A.,&Hill, A. D. (2017). Beyond lobbying expenditures:Howlobbying breadth and political connectedness affect firm outcomes. Academy of Management Journal, 60(3), 1138–1163. https://doi.org/10.5465/amj.2015.0584

Rudy, B. C., & Johnson, A. F. (2019). The chief political officer: Ceo characteristics and firm investment in corporate political activity. Business & Society, 58(3), 612–643. https://doi.org/10.1177/0007650316675606

Schuler, D. A., Rehbein, K., & Cramer, R. D. (2002). Pursuing strategic advantage through political means: A multivariate approach. Academy of Management Journal, 45(4), 659–672. https://doi.org/10.2307/3069303

Shaffer, B., Quasney, T. J., & Grimm, C. M. (2000). Firm level performance implications of nonmarket actions. Business & Society, 39(2), 126–143. https://doi.org/10.1177/000765030003900202

Shen, W. (2003). The dynamics of the ceo-board relationship: An evolutionary perspective. The Academy of Management Review, 28(3), 466. https://doi.org/10.2307/30040733

Walters, B. A., & McCumber, W. R. (2019). Network centrality and firm performance in separate board leadership structures. Journal of Managerial Issues, 31, 46.

Wu, S., Levitas, E., & Priem, R. L. (2005). Ceo tenure and company invention under differing levels of technological dynamism. Academy of Management Journal, 48(5), 859–873. https://doi.org/10.5465/amj.2005.18803927

Yu, F., & Yu, X. (2011). Corporate lobbying and fraud detection. Journal of Financial and Quantitative Analysis, 46(6), 1865–1891. https://doi.org/10.1017/S0022109011000457

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Copyright (c) 2023 Mine Ozer