Corporate strategy, political contributions and corporate risk-taking
ISSN: 1472-0701
Article publication date: 17 April 2023
Issue publication date: 3 November 2023
Abstract
Purpose
Despite the importance and prevalence of corporate political activities in modern organizations, there remains limited insight on the potential relationship between political contributions and companies’ risk-taking activities. This study aims to examine the relationship between monetary political contributions of firms and corporate risk-taking activities in the context of unstable political and economic environments.
Design/methodology/approach
The authors use a two-step system GMM estimation to investigate the subject using a cross-country sample of 307 firms from 22 countries covered over 2002–2017. In line with previous studies, the authors control for various corporate governance mechanisms, firm-level factors and country-level characteristics.
Findings
The findings demonstrate that firms that make monetary political contributions exhibit lower levels of risk as measured by different proxies for risks, namely, systematic, idiosyncratic and total risk.
Practical implications
The results suggest that political contributions can be a useful mechanism to mitigate risk exposure. Also, the use of different risk measures and other factors for robustness fosters a better understanding of political connectedness in a more contextualized and dynamic manner.
Originality/value
This study seeks to contribute to the debate surrounding corporate strategy, political connectedness and corporate risk-taking by using actual monetary political contributions as an explicit measure of political connection. This study furthers scholarly understanding on the dynamics of corporate political activities using political contributions in monetary terms as a measure of political connectedness and its impact on risk-taking. Furthermore, the authors explore this topic using insights from nonmarket strategy literature and studies on political contributions.
Keywords
Acknowledgements
The authors would like to express their gratitude to Dr Yusuf Ag from the University of Liverpool for his invaluable support and research assistance in collecting, coding and cleaning the data for this research. The authors would also like to extend their appreciation to the anonymous referees for their insightful feedback and constructive comments, which has significantly enhanced the quality of this paper.
Citation
Halari, A., Ahmad, S., Ullah, S. and Amankwah-Amoah, J. (2023), "Corporate strategy, political contributions and corporate risk-taking", Corporate Governance, Vol. 23 No. 7, pp. 1484-1505. https://doi.org/10.1108/CG-07-2022-0310
Publisher
:Emerald Publishing Limited
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