Shedding Light on the Dark Side of Firm Lobbying: A Customer Perspective

Abstract

Firms spend a substantial amount on lobbying—devoting financial resources on teams of lobbyists to further their interests among regulatory stakeholders. Previous research acknowledges that lobbying positively influences firm value, but no studies have examined the parallel effects for customers. Building on the attention-based view (ABV) of the firm, the authors examine these customer effects. Findings reveal that lobbying negatively affects customer satisfaction such that the positive relationship between lobbying and firm value is mediated by losses to customer satisfaction. These findings suggest a dark side of lobbying and challenge current thinking. However, several customer-focused moderators attenuate the negative effect of lobbying on customer satisfaction, predicted by ABV theory, including the chief executive officer’s background (marketing vs. other functional area) and the firm’s strategic use of resources (advertising spending, research-and-development spending, or lobbying for product market issues). These moderators ensure consistency between lobbying and customer priorities or direct firm attention toward customers even while firms continue to lobby. Finally, the authors verify that lobbying reduces the firm’s customer focus by measuring this focus directly using text analysis of firm communications with shareholders. Collectively, the research provides managerial implications for navigating both lobbying activities and customer priorities, and public policy implications for lobbying disclosure requirements.

Lobbying, defined as “expending resources in an attempt to sway government officials to make decisions beneficial to the lobbying firm” (Ridge, Ingram, and Hill 2017, p. 1138), is a primary means for firms to manage their regulatory environment and attain strong returns. Accordingly, lobbying expenditures have increased by more than 130% since 1998 (Center for Responsive Politics 2021), and many large firms (e.g., Ford, Cisco, Facebook, Delta) maintain their own government affairs divisions, which retain dozens of lobbyists to represent their interests (opensecrets.org). The strong accounting and financial market returns to lobbying (Unsal, Hassan, and Zirek 2016), estimated by some at 22,000% (Alexander, Mazza, and Scholz 2009), can even exceed returns to product market investments such as research and development (R&D) (Bessen 2016). Similarly, recent findings reveal that $325 million in lobbying investments by Fortune 100 firms accounted for $338 billion in federal contracts in return (Andrzejewski 2019).

Lobbying is the most common form of corporate political activity in the United States (Funk and Hirschman 2017). Through lobbying, firms aim to minimize threats and exploit opportunities in their regulatory environment. As regulatory capture theory explains, firms derive competitive advantages from benefits such as subsidies, monopolistic or favorable competitive conditions (e.g., barriers to entry, access to new markets), protective tariffs, and fixed prices (Stigler 1971). Because these competitive benefits do not hinge on the firm’s ability to satisfy customers, regulatory capture theory hints that lobbying could shift firm attention away from customer priorities (Dal Bó 2006). Anecdotal evidence supports this argument. For example, Oracle lobbies extensively on technology policy matters, to such an extent that some observers have criticized its lack of focus on customers. A former government official accused Oracle of “using government as a weapon to delay, annoy, and extract value from other entities” rather than attending to the marketplace or its customers (Grimaldi, Mullins, and McKinnon 2020). Despite these arguments, the effects of firm lobbying on customer outcomes remain largely unknown.

Regulatory capture theory alludes that lobbying may adversely affect customer outcomes, but no research in marketing directly examines this relationship. Moreover, extant theory does not explain why a focus on the regulatory environment reduces the firm’s customer focus. Therefore, our first research objective is to investigate the heretofore unexamined effect of firm lobbying on customer satisfaction—a critical customer outcome that affects firm value. We draw from the attention-based view (ABV) of the firm (Ocasio 1997), which argues firms have limited attention available to devote to distinct strategic priorities (Joseph and Wilson 2018; Ocasio 1997, 2011; Ocasio and Joseph 2005). Because lobbying can produce direct firm advantages by appealing to the regulatory environment, firms may be inclined to focus on specific activities, imperatives, and stakeholders in that environment, rather than on customers, which should lead to diminished customer satisfaction. In line with this reasoning, previous research highlights that firms struggle to maintain focus on multiple distinct priorities, such as when they partner with competitors versus channel members in interfirm alliances (Rindfleisch and Moorman 2003) or attempt to both grow revenues and cut costs (Rust, Moorman, and Dickson 2002).

Yet the high returns to lobbying make it unlikely that firms will halt this practice. To this end, our second research objective is to identify strategic levers firms can use to minimize the negative effects of their lobbying on customer satisfaction. The ABV of the firm also informs our choice of which strategic levers to study. The theory posits that firm behavior is an outcome of the distribution of decision makers’ attention. Decision makers’ attention, in turn, is informed by personal values, unique firm resources, and rule configurations (Ocasio 1997, 2011; Ocasio, Laamanen, and Vaara 2018). Accordingly, we predict that four moderators might effectively channel firm attention toward customers: chief executive officer (CEO) background (marketing vs. other functional area), the firm’s spend on advertising and R&D, and lobbying for product market issues (rather than for non–product market issues). These four moderators work as aligning and/or counterbalancing mechanisms. Aligning mechanisms ensure consistency between lobbying and customer priorities. Influential firm decision makers can direct attention and shape focus by aligning the firm’s strategic priorities with their own. Counterbalancing mechanisms work to offset firm attention on one strategic priority by redirecting focus to another. We expect that various counterbalancing mechanisms can direct firm attention toward customers even while firms continue to lobby. These attention mechanisms should attenuate negative effects of lobbying on customer satisfaction. ¹

Finally, our third research objective is to uncover the mechanism underlying the negative relationship between lobbying and customer satisfaction. In developing our hypotheses, we posit that lobbying reduces customer satisfaction by decreasing the firm’s focus on customers. With additional analyses performed on a subset of the data, we confirm this prediction. In support of the ABV, we uncover a loss of customer focus using shareholder communications, a text-based measure that captures firm emphasis on customers as conveyed in shareholder earnings calls.

The tests of our hypotheses rely on an unbalanced panel of 758 observations involving 87 publicly traded firms during the period 2000–2014. We find a significant, negative effect of lobbying on customer satisfaction, providing novel evidence of the dark side of firm lobbying. We also replicate previous findings of a positive effect of lobbying on firm value but identify a negative counteracting effect when we account for customer satisfaction. This insight challenges economic and finance literature that suggests largely positive effects of lobbying on firm value (e.g., Chen, Parsley, and Yang 2015; Hill et al. 2013). Consistent with our expectations, we also show that the CEO’s background, advertising spend, R&D spend, and product market lobbying each positively moderate the lobbying–customer satisfaction relationship. Finally, a decrease in customer focus helps explain the negative lobbying–customer satisfaction link.

Our findings contribute to marketing theory and practice in three important ways. First, we extend the ABV to reveal that otherwise-beneficial firm actions (lobbying) can simultaneously harm customer outcomes. This view helps augment shortcomings in extant theoretical frameworks (i.e., regulatory capture) for explaining how limits in firm attention reduce the necessary focus on customers, with detrimental effects for satisfaction and firm value. In addition to challenging extant research, identifying this dark side of lobbying represents a warning to firms to be wary of losing customer focus. Second, we offer solutions in the form of a set of theoretically informed, managerially relevant moderators that can align or counterbalance firm attention to customers and thereby attenuate the negative effects of lobbying on customer satisfaction. Third, we detail how the negative effects emerge, by showcasing a key pathway leading to a loss of customer focus conveyed by firms’ shareholder communications. Considering firms’ increasing strategic attention to lobbying, this research offers timely implications for marketing theory and practice.

We begin by developing the conceptual framework, which blends regulatory capture theory with the ABV of the firm. After we explain our empirical approach, we report the focal study findings. We also present a series of additional analyses. Finally, we conclude with theoretical implications and insights for marketing managers and policy makers.

Firm Lobbying and Regulatory Capture

As the list in Table 1 reveals, concepts highlighted in regulatory capture theory (Dal Bó 2006; Etzioni 2009; Stigler 1971) underpin studies of the relationship between lobbying and firm value, most of which identify positive firm outcomes of lobbying. We draw on these foundations to suggest a positive effect of lobbying on firm value, consistent with previous findings. However, to address our research objectives, we expand our conceptual framework to account for limits to firm attention (Figure 1). We expect that firm lobbying activities decrease the firm’s focus on customers, in line with arguments from the ABV (Joseph and Ocasio 2012; Ocasio 1997; Ocasio and Joseph 2005). The ABV also informs our investigation of moderators of the lobbying–customer satisfaction relationship.

Figure 1.

Customer focus and the dark side of lobbying: conceptual framework.

Table 1.

Selected Lobbying Research: Past Outcomes and Moderators Studied.

Study	Firm Outcomes	Customer Outcomes	Moderators
Kee, Olarreaga, and Silva (2004)	Market access, tariffs
De Figueiredo and Silverman (2006)	Earmarks
Alexander, Mazza, and Scholz (2009)	Money repatriated
Richter, Samphantharak, and Timmons (2009)	Effective tax rate
Yu and Yu (2011)	Fraud lawsuits
Duchin and Sosyura (2012)	Approval for Troubled Asset Relief Program bailout funds
Hill et al. (2013)	Firm value		Political action committee contributions
Borisov, Goldman, and Gupta (2016)	Abnormal returns		Firm unethical behavior
Chen, Parsley, and Yang (2015)	Net income, stock market returns
Gao and Huang (2016)	Returns, trading volume
Kang (2016)	Policy enactment, lobbying returns
Unsal, Hassan, and Zirek (2016)	Firm value		CEO political affiliation
Ridge, Ingram, and Hill (2017)	Government contracts		Connectedness
Fidrmuc, Roosenboom, and Zhang (2018)	M&A review outcomes		Regulator risk
Martin et al. (2018)	Firm value, systematic and idiosyncratic risk		R&D and advertising stock
Rayfield and Unsal (2018)	Product approval	Product recall
Diestre, Barber, and Santalo (2019)	Timing of safety alert	Drug-related side effect
Lambert (2019)	Regulatory enforcement, firm performance
Current study	Firm value	Customer satisfaction	CEO marketing background, advertising spend, R&D spend, product market lobbying

As noted previously, lobbying has a positive effect on firm value (Borisov, Goldman, and Gupta 2016; Chen, Parsley, and Yang 2015; Hill et al. 2013; Martin et al. 2018), which helps explain its growing practice. In particular, lobbying can result in regulatory capture (Stigler 1971) or allow the firm to dominate decisions about its regulatory environment (Etzioni 2009). With regulatory capture, a firm attains disproportionate influence over a regulatory system designed to constrain and temper their behavior, which produces firm-specific benefits (Dal Bó 2006). For example, regulatory capture might create policy advantages or allow firms to establish monopoly power (Laffont and Tirole 1993). The diverse outcomes of regulatory capture might assist firms directly, without benefiting customers, such as reduced regulatory oversight, lower tax rates, preferred government subsidies, or entry into restricted markets (Table 1). It is important to note that financial market responses to lobbying do not necessarily hinge on policy changes. Successful lobbying might preserve a favorable status quo or foster relationships without producing any other immediate outcomes (Drutman 2015). As Kang (2016) shows, even if policy changes are rare, a firm that lobbies still achieves a positive return on its investment, perhaps because financial markets use lobbying as a signal of firm influence. Accordingly, we hypothesize the following:

H₁: Firm lobbying relates positively to firm value.

ABV of the Firm: Lobbying and Customer Focus

Regulatory capture creates competitive advantages for the firm that do not depend on satisfying customers. Therefore, lobbying could make customer-focused efforts seem less necessary (Dal Bó 2006; Dal Bó and Rossi 2007), though we lack any clear explanation for how this shift occurs or what can be done to attenuate its effect. By turning to the ABV (Joseph and Ocasio 2012; Ocasio 1997; Ocasio and Joseph 2005), we seek to address this gap (Figure 1). This theory stipulates that firm actions, adaptations, and performance outcomes result from the distribution of attention—defined as “the noticing, encoding, interpreting, and focusing of time and effort by organizational decision-makers” on behalf of the firm (Ocasio 1997, p. 189)—to various strategic activities (Ocasio 2011). Firm decision makers confront myriad demands on their time and attention (Child 1972), and their bounded rationality and information processing constraints limit the activities or strategic imperatives to which they can attend (Cyert and March 1963; Ocasio, Laamanen, and Vaara 2018; Simon 1947). Consistent with the ABV, prior research suggests that firms and their decision makers generally cannot pursue two strategically opposed foci effectively, such as revenue and cost emphases (Rust, Moorman, and Dickson 2002), allying with competitors and channel members (Rindfleisch and Moorman 2003), exploration and exploitation strategies (Andriopoulos and Lewis 2009), meeting stock market expectations and innovating (Wies and Moorman 2015), developing international and domestic market knowledge bases (Sapienza, De Clercq, and Sandberg 2005), or pursuing growth through organic and merger and acquisition approaches (Yu, Engleman, and Van de Ven 2005).

We extend this thinking to consider firm lobbying and examine the effect on customer satisfaction. This important performance metric is a function of customer expectations, perceived quality, and perceived value (Anderson and Sullivan 1993; Fornell, Morgeson, and Hult 2016), and it usually requires an intentional firm focus on customers. When that focus decreases, satisfaction is likely to suffer. Lobbying, or appealing to regulators for direct benefits, does not hinge on appeasing customers (Dal Bó 2006). Because firm attention to both lobbying and customers implies that its focus is spread across diverse priorities (i.e., regulators and customers), ABV suggests that the firm cannot adequately focus on both. We predict that when firms lobby, their attention to customers decreases for four reasons.

First, customer-focused activities such as R&D spending have more uncertain outcomes and relatively lower returns than lobbying (Bessen 2016). Therefore, firms might prioritize lobbying to attain direct advantages. Second, lobbying generally entails rent seeking from existing assets, by protecting them and expanding the returns from them to the greatest extent possible, whereas a focus on customers typically implies that firms create new value for or with customers, which is inherently more difficult. Third, lobbying and a customer focus involve conceptually distinct stakeholders and environments: legislators/regulators and customers, respectively. In the latter case, product market competition is intense, as firms jockey for position in heterogeneous customers’ consideration sets. Competition in the regulatory sphere instead is less intense because the relatively fewer legislative audiences tend to be more homogeneous, and relationships can be established more quickly (Drutman 2015). Furthermore, firms (in contrast to other stakeholders such as special interest groups) have more resources and coordination ability to appeal to legislators (Lyon and Maxwell 2004; Olson 1971). Fourth, firms must deploy different resources, skills, and actions to succeed in these disparate stakeholder environments. Because there are fewer, more well-defined, and more accessible regulatory and special interest group stakeholders, firms’ resources, skills, and actions can be deployed more effectively than in broad and diverse customer environments. Accordingly, we hypothesize the following:

H₂: Firm lobbying relates negatively to customer satisfaction.

Mediating Role of Customer Satisfaction in the Lobbying–Firm Value Relationship

As noted previously, lobbying research reveals positive effects on firm value (Table 1). We examine how lobbying affects firm value when accounting for the mediating role of customer satisfaction (Figure 1). Marketing research highlights the positive influence of customer satisfaction on firm value (Anderson, Fornell, and Mazvancheryl 2004), perhaps because customer satisfaction increases cash flows (Gruca and Rego 2005; Mittal et al. 2005) and reduces future cash flow volatility (Fornell et al. 2006; Gruca and Rego 2005). Because we expect lobbying to relate negatively to customer satisfaction (H₂) but positively to firm value (H₁), we predict a competing, mediating role (Zhao, Lynch, and Chen 2010) of customer satisfaction in the lobbying–firm value relationship. That is, a loss of customer satisfaction is a cost of lobbying, and we believe that negative relationship will detract from the firm value achieved by using lobbying. Lobbying relates positively to firm value, but the negative relationship between lobbying and customer satisfaction should have a counteracting effect. We therefore hypothesize the following:

H₃: Customer satisfaction negatively mediates the positive relationship between lobbying and firm value.

Customer-Focused Moderators

If lobbying produces direct, positive effects on firm value, firms are unlikely to temper the practice, as suggested by real-world examples of its increasing use. Therefore, to address the risk of negative counteracting effects through customer satisfaction, we propose moderators that should attenuate these negative effects. The lobbying–firm value path is well established (Table 1), so we concentrate here on the unexplored relationship of lobbying with customer satisfaction.

According to the ABV, firm behavior is an outcome of the distribution and regulation of decision maker attention and the firm-level attentional structures that support this focus (Ocasio 1997, 2011; Ocasio, Laamanen, and Vaara 2018). In proposing the ABV, Ocasio (1997, p. 188) established two foundational premises: (1) influential firm decision makers determine the firm’s attention priorities and shape its focus and (2) the firm’s attendance to its situation and context depends on “resource and rule configurations” by which the firm allocates resources and channels attention. If lobbying diverts firm attention away from customers, these premises offer direction for refocusing attention back to customers.

Drawing from Ocasio’s (1997) two premises, we propose that the negative effect of lobbying on customer satisfaction can be attenuated through two attention-directing mechanisms. First, aligning mechanisms ensure consistency between lobbying and customer priorities. Influential firm decision makers can direct attention and shape focus by aligning the firm’s strategic priorities with their own. In particular, a CEO with a marketing background can likely better align lobbying with firm attention to customers and customer imperatives than a CEO who does not have a marketing background. Second, counterbalancing mechanisms work to offset firm attention on one strategic priority by redirecting focus to another. We expect that various counterbalancing mechanisms can direct firm attention toward customers even while firms continue to lobby. Firm spending on critical priorities emphasizes their importance, especially when used together with firm efforts that seemingly work to achieve different goals, such as lobbying. Specifically, we propose greater advertising spending and R&D spending, allocations that primarily concern customers, counterbalance firm attention to lobbying, thereby offsetting the negative effects of lobbying on customer satisfaction.

Finally, previous research has not distinguished lobbying for non–product market issues, such as taxes and workplace safety, from product market issues, such as product specifications and patents (see Web Appendix A for a complete list of non–product market and product market issues for which firms can lobby). Consistent with ABV logic, we expect that lobbying for non–product market issues directs attention away from customers, whereas lobbying for product market issues orients firm attention toward customers. We distinguish between these two types of lobbying to posit that customer satisfaction is less adversely affected when firms counterbalance general lobbying efforts with a focus on product market issues. In summary, the ABV leads us to derive four moderators that focus firm attention on customers to offset negative effects, even while lobbying. We discuss each in greater detail in the following subsections.

CEO background

In the ABV theoretical tradition, CEOs emerge as “the most critical players” in directing the firm’s focus because they choose how the firm should channel its attention and which relevant priorities it pursues (Ocasio 1997, p. 197; Yadav, Prabhu, and Chandy 2007), even among diverging priorities such as lobbying and customers. Indeed, attention-based perspectives suggest that firm strategies reflect the CEO’s values and vision (Cho and Hambrick 2006; Stevens et al. 2015) and that the CEO can integrate firm attention or align diverse divisions toward a shared focus on specific priorities (Joseph and Wilson 2018). As we explain, and supported by Ocasio’s (1997) foundational premises, CEOs shift firm attention to different imperatives through an aligning mechanism. Therefore, CEO background, which is defined as the functional knowledge and skills that CEOs develop throughout their educational and career experiences (Saboo et al. 2017), should inform firm strategic priorities and attention because CEOs’ background allows them to align firm focus accordingly.

We expect that the negative relationship between lobbying and customer satisfaction is moderated by the firm’s CEO background, such that this relationship is less negative for firms with CEOs who have a marketing background, as opposed to firms with CEOs who have other types of functional expertise. A CEO with a marketing background understands the need to monitor customer expectations and create customer value (Boyd, Chandy, and Cunha 2010), and thereby can more likely align disparate firm efforts, such as those focused on customers and regulators, to enhance the synergy between them. Greater CEO attention to customer priorities and alignment of otherwise disparate firm activities can create a shared, customer-centric vision throughout the firm. Taken together, these efforts should lessen the negative effect of lobbying on customer satisfaction. That is, we expect that this lessened negative effect will occur for firms that have CEOs with a marketing background, as opposed to firms that have CEOs with other functional expertise. We hypothesize:

H₄: CEO background moderates the negative effect of lobbying on customer satisfaction, such that the effect is less negative in firms with CEOs with a marketing background.

Advertising spend and R&D spend

The negative relationship between lobbying and customer satisfaction may be attenuated among firms that counterbalance lobbying with advertising spend and R&D spend. In their study of strategic attention and firm performance, Eklund and Mannor (2020) show that if firms with widely dispersed attention increase their R&D spending, they counterbalance negative effects of attention dispersion. Further, existing research finds that spending on R&D serves as a powerful signal to employees, customers, and other stakeholders that the firm prioritizes customer value creation and maintains a fundamental focus on innovation-related activities (Cho and Hambrick 2006; Rhee and Leonardi 2018).

We expect that the negative relationship between lobbying and customer satisfaction will be moderated by the firm’s R&D spend. Foundational premises of the ABV state that resource allocation to particular priorities signal their importance to internal stakeholders and channel their attention toward these priorities (Ocasio 1997; Sapienza, De Clercq, and Sandberg 2005). Firms with higher R&D spend signal greater importance of customer priorities to internal stakeholders as compared with firms that spend less on R&D. Consequently, firms that spend more on R&D experience a stronger counterbalancing effect that attenuates the customer focus loss associated with lobbying. In complement to its attention counterbalancing role, R&D spend may be deployed with lobbying to create value for customers. For example, when R&D spending and lobbying are used in concert, firms can gain access to new markets, thereby providing customers with more and varied product options. Similarly, lobbying may help the firm introduce more innovations, especially if they are subject to regulatory hurdles such as in the drug and medical devices sector (Rayfield and Unsal 2018). Thus, we expect R&D spend to moderate the lobbying–customer satisfaction relationship, lessening its negative effect.

We expect a similar moderating relationship for advertising spend, such that the negative relationship between lobbying and customer satisfaction will be moderated by the firm’s advertising spending. Studies have shown that greater spending on advertising signals superior product quality, highlights customer value, and influences stakeholders’ perceptions of the firm and its priorities (Gao et al. 2015; Grewal, Chandrashekaran, and Citrin 2010; Haumann et al. 2014). Typically, advertising activities are customer focused (Bagwell 2007). Therefore, advertising spend together with firm lobbying works in a counterbalancing way: firms that spend more on advertising experience a stronger counterbalancing effect to attenuate the customer focus loss associated with lobbying. In complement to this attention counterbalancing role, when advertising spend and lobbying are integrated, they can lead to increased reach and saliency of a firm’s advertising activities. For example, pharmaceutical firms deployed lobbying to help expand their available advertising options to highly profitable direct-to-consumer formats (Royne and Myers 2008). Thus, we expect advertising spend to moderate the lobbying–customer satisfaction relationship, lessening its negative effect. For these reasons, we predict the following:

H_5a: Advertising spend moderates the negative effect of lobbying on customer satisfaction., such that the effect is less negative in firms with greater advertising spend.

H_5b: R&D spend moderates the negative effect of lobbying on customer satisfaction, such that the effect is less negative in firms with greater R&D spend.

Lobbying for product market issues

We integrate the ABV perspective and lobbying research to suggest that the target of a firm’s lobbying efforts can attenuate the negative effect of lobbying on customer satisfaction. That is, firms lobby for both non–product market issues (e.g., taxes, beneficial federal budget allocations) and product market issues (e.g., advertising, patents, product safety issues). Lobbying for product market issues should lessen the negative effect of lobbying on customer satisfaction, as product market issues have an inherent customer focus. By lobbying for issues relevant to the product market, the firm conveys its strategic prioritization of customers to its employees, customers, regulators, and other stakeholders. Likewise, lobbying that is focused on product market imperatives counterbalances lobbying that is focused on direct firm benefits, such as those stipulated in regulatory capture.

Lobbying to address product market issues, relative to other issues, should offset otherwise negative customer satisfaction effects from lobbying generally. This occurs by directing firm attention to customer priorities and channeling that attention across functional divisions (i.e., regulatory and marketing firm functions), thus attenuating the customer focus loss associated with lobbying. Conversely, lobbying for non–product market issues does not require attention to customers and resembles the direct path to firm value as stated in regulatory capture theory. Even if such lobbying secures other firm benefits, those efforts are unlikely to produce benefits for customers. We expect firm lobbying for product market issues to moderate the negative effect of lobbying on customer satisfaction; that is, the greater the proportion of lobbying for product market issues relative to total lobbying efforts, the more likely this negative effect is lessened. We predict the following:

H₆: Product market lobbying moderates the negative effect of lobbying on customer satisfaction, such that the effect is less negative in firms with a greater proportion of lobbying for product market issues.

Method

To test our hypothesized relationships, we collected secondary data from a variety of sources. We describe the data, sources, and variable construction approaches next. The sample includes firms of various sizes from a broad range of industries, tracked over time, to provide a thorough test of our research questions.

Sample and Data

Our initial sampling frame comprises all firms for which we can obtain customer satisfaction data from the American Customer Satisfaction Index (ACSI; theacsi.org), which provides scores for approximately 200 Fortune 500 firms across multiple industries and is commonly used in marketing strategy research (e.g., Fornell, Morgeson, and Hult 2016; Rego, Morgan, and Fornell 2013). When a firm had multiple brands for which satisfaction scores are reported, we took the average as our measure of firm-level satisfaction. ² We also obtained industry-level customer satisfaction scores from the ACSI database and then matched firms from this database to their entries in COMPUSTAT. Consistent with our focus and prior research, we dropped firms that failed to report both advertising and R&D expenditures (Rego, Morgan, and Fornell 2013). ³ We manually checked the firms’ annual 10K statements if they reported zero R&D expenditures. ⁴ The overlap between ACSI and COMPUSTAT, when accounting for advertising spend and R&D spend, produced a final sample of 87 firms, consistent with prior research that adopts similar approaches (Gruca and Rego 2005; Rego, Morgan, and Fornell 2013).

Next, we combined this data set with lobbying data obtained from opensecrets.org, the Senate Office of Public Records (SOPR), and followthemoney.org. If none of these databases provided information, we set the lobbying expenditures for the firm to zero dollars. The Lobbying Disclosure Act mandates that firms report all lobbying expenditures above $5,000 per quarter; a failure to do so incurs penalties (lobbyingdisclosure.house.gov). Thus, we are confident that no firm lobbying is omitted from our data set. Lobbying data include expenditures and the issues on which firms lobby (see also Web Appendix A). To cull the CEO background data, we used disparate sources such as Securities Exchange Commission annual reports, Bloomberg, BoardEx, LexisNexis, popular media, and industry reports. We use publicly available data from Regdata (Al-Ubaydli and McLaughlin 2015) to identify whether an industry is regulated. Furthermore, to control for the potential effects of customer awareness of firm lobbying (i.e., lobbying visibility) that might affect satisfaction, we count relevant news articles using a Factiva search for Associated Press articles on firm lobbying. Table 2 details the variables, operationalizations, references, and data sources.

Table 2.

Variables, Measures, and Data Sources.

Construct	Variable Notation	Descriptions (Measures)	Representative Papers	Data Sources
Dependent Variables
Customer satisfaction	Cust_Satis	Customer satisfaction index (1–100)	Fornell et al. (2016)	ACSI
Firm value	Tobins_q	Tobin’s q	Martin et al. (2018)	COMPUSTAT
Independent Variable
Lobbying	Lobby_Spend	Lobbying expenditure (federal and state)/ Assets	Hill et al. (2013)	Opensecrets.org, SOPR, followthemoney.org
Customer-Focused Moderators
CEO marketing background	Mkt_CEO	Dummy = 1 if CEO has predominant marketing experience	Saboo et al. (2017)	Annual Reports, Bloomberg, LexisNexis, BoardEx
Advertising spend	AD_Spend	Advertising expenditure/Assets	Tuli and Bharadwaj (2009); Gruca and Rego (2005)	COMPUSTAT
R&D spend	RD_Spend	R&D expenditure/Assets	Tuli and Bharadwaj (2009); Gruca and Rego (2005)	COMPUSTAT
Product market lobbying	Product_Lobby	Number of product market issues/Total number of issues lobbied for	Novel to this research	SOPR, Opensecrets.org
Firm-Specific Control Variables
Leverage	Leverage	Long-term debt-to-asset	Tuli and Bharadwaj (2009); Jindal and McAlister (2015)	COMPUSTAT
Profit	ROA	Return on assets: Ratio of net income to total assets	Rego, Morgan, and Fornell (2013)	COMPUSTAT
Firm size	Size	Employee count (in 1,000s)	Otto, Szymanski, and Varadarajan (2020)	COMPUSTAT
Lobbying visibility	Visibility	Number of articles (annual) that discuss focal firm lobbying	Novel to this research	Factiva
Industry-Specific Control Variables
Industry growth rate	Industry_Growth	Change in industry sales in primary two-digit SIC industry/total industry sale	Rego, Morgan, and Fornell (2013); Tuli and Bharadwaj (2009); Gruca and Rego (2005)	COMPUSTAT
Industry concentration	Industry_Conc	Herfindahl–Hirschman index (0–1)	Rego, Morgan, and Fornell (2013); Tuli and Bharadwaj (2009); Gruca and Rego (2005)	COMPUSTAT
Regulated industry	Industry_Regulated	Dummy = 1 if firms operate in a highly regulated industry	Martin et al. (2018)	REGDATA
Industry customer satisfaction	Ind_Cust_Satis	Average customer satisfaction score of industry	Novel to this research	ACSI

Notes: ACSI = American Customer Satisfaction Index; SOPR = Senate Office of Public Records; SIC = Standard Industrial Classification.

Variable Construction

Customer satisfaction, advertising spend, and R&D spend are widely used variables, so we do not detail their construction here, beyond the information provided in Table 2. Instead, we focus on the variables that require additional explanation or coding or are unique to our research. First, we calculate Tobin’s q using the Chung and Pruitt (1994) measure, which is common to marketing research (e.g., Martin et al. 2018). Second, lobbying is the sum of firms’ federal- and state-level lobbying spend, obtained from the SOPR, opensecrets.org (both of which report federal data), and followthemoney.org (which reports state data). Consistent with prior research (e.g., Kurt and Hulland 2013; Tuli and Bharadwaj 2009) and to account for size effects, we scale lobbying spend by assets to create our lobbying measure.

Third, firms are not required to report the specific dollar amounts allocated to each lobbying issue. However, they do list the issues for which they lobby (Web Appendix A). We use this information to construct our measure of product market lobbying, according to the coding method described by Chandy and Tellis (2000) and Srinivasan, Lilien, and Rangaswamy (2006). Specifically, two coders independently coded all non–product market issues, defined as “activities that do not directly influence the company’s ability to create, deliver, or communicate products or services to customers.” A kappa value of .80 indicates high interrater reliability. Any disagreements were resolved by a member of the research team. After we identified non–product market issues, we summed their occurrences in any given year and subtracted that value from the total number of lobbying issues reported by a firm for a given year to arrive at the count of product market issues. We then scaled this count by the total number of lobbying issues reported by the firm in that year to create our measure of product market lobbying.

Fourth, we use Securities Exchange Commission annual reports, Bloomberg, LexisNexis, popular media, and industry reports to construct our CEO background variable. This dummy variable takes a value of 1 if the CEO has dominant marketing experience and 0 if s/he has any other functional background (Saboo et al. 2017). Like our coding of product market lobbying, the coding of CEO marketing expertise was independently verified by two coders and validated by a member of the research team. Kappa values, again, exceed .80, providing evidence of interrater reliability.

Data Description

Table 3 features summary statistics and correlations for the study variables. Among the 155 unique CEOs in our data set, 22% had a marketing background. Their average tenure was 4.66 years. Lobbying expenditures are less than advertising and R&D expenditures, yet firms spend more money lobbying Congress than taxpayers spend to operate the legislative branch (Drutman 2015). Each member of Congress is the focus of about $3.7 million annually in attempted influence and persuasion by U.S. firms (Andrzejewski 2019).

Table 3.

Summary Statistics and Correlations.

	Construct	M	SD	1	2	3	4	5	6	7	8	9	10	11	12	13	14
1.	Firm value	1.87	1.48	1.00
2.	Customer satisfaction	78.94	5.09	.16	1.00
3.	Lobbying	.00	.00	.11	−.07	1.00
4.	CEO marketing background	.22	.42	.00	.06	−.06	1.00
5.	Advertising spend	.04	.05	.20	.21	.32	−.04	1.00
6.	R&D spend	.02	.03	.27	.03	.08	−.12	.03	1.00
7.	Product market lobbying	.51	.31	.18	.04	.28	.02	.04	.12	1.00
8.	Firm size	164.01	271.93	−.09	−.18	−.14	.12	−.19	−.18	−.03	1.00
9.	Leverage	.24	.16	.05	.06	−.05	−.03	.07	−.23	.10	−.02	1.00
10.	Profit	.16	.09	.51	.08	−.02	.00	.28	.00	.09	−.06	.09	1.00
11.	Industry concentration	.11	.10	−.16	−.22	−.08	−.00	−.07	−.36	−.11	.31	.05	−.10	1.00
12.	Industry growth rate	.04	.08	.07	.05	.05	.02	.02	.00	.00	−.01	−.02	.03	−.06	1.00
13.	Regulated industry	.10	.30	−.02	−.34	.02	−.06	−.12	−.18	.12	−.03	.17	.10	.32	−.05	1.00
14.	Lobbying visibility	.74	2.72	.10	−.25	.05	−.01	−.11	.13	.09	−.02	−.15	.11	−.11	.01	.12	1.00
15.	Industry customer satisfaction	78.08	4.44	.03	.76	.00	.11	.24	.02	.03	−.06	.01	.06	−.27	.08	−.34	−.18

Notes: Correlations at .06 or greater (absolute value) are significant at p < .10.

We checked for multicollinearity before proceeding to the identification strategy and model specification. The mean variance inflation factor is 2.06, and the highest individual value is 4.32. In addition, to rule out multicollinearity concerns for the interaction terms (with r > .70), we residual-centered the interaction of lobbying with product market lobbying. Residual centering has been shown to reduce multicollinearity between an interaction term and its first-order effect term, to provide stable and unbiased results (Little, Bovaird, and Widaman 2006), and has been used in recent literature (e.g., Danneels and Vestal 2020; Josephson et al. 2019).

Identification Strategy and Model Specification

Prior to specifying our models, we conducted panel Granger causality tests to examine whether lobbying Granger-causes customer satisfaction or vice versa. They reveal that lobbying Granger-causes customer satisfaction (χ² = 5.04, p < .10) and not the reverse. Next, we examine independent variable stationarity (lobbying) with panel unit root tests. A lack of stationarity dictates how the variables enter the model. The Fischer-type Phillips–Perron test rejects the null hypothesis that the variables contain unit roots (p < .01). We conclude the variable is mean-stationary and specify it in terms of levels.

Model Specification

To test H₁–H₃, we specify two equations ⁵ for any firm i operating in a primary two-digit Standard Industrial Classification (SIC) code industry j at time t ⁶ :

$$\begin{array}{rl}\mathrm{Tobins}\mathrm{\_}{\mathrm{q}}_{\mathrm{i},\mathrm{j},\mathrm{t}}& ={\alpha }_{1,0}+{\alpha }_{1,1}\mathrm{Lobby}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\alpha }_{1,2}\mathrm{Cust}\mathrm{\_}\mathrm{Sati}{\mathrm{s}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{1,3}\mathrm{Mkt}\mathrm{\_}\mathrm{CE}{\mathrm{O}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\alpha }_{1,4}\mathrm{AD}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{1,5}\mathrm{RD}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\alpha }_{1,6}\mathrm{Product}\mathrm{\_}\mathrm{Lobb}{\mathrm{y}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\omega }_1\mathrm{Firm}\mathrm{\_}\mathrm{Control}{\mathrm{s}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\vartheta }_1\mathrm{Industry}\mathrm{\_}\mathrm{Control}{\mathrm{s}}_{\mathrm{j},\mathrm{t}-1}\\ & +\sum _{\mathrm{K}=1}^{\mathrm{t}-1}{\delta }_{1,\mathrm{K}}\mathrm{TIM}{\mathrm{E}}_{\mathrm{K}}+{\epsilon }_{1,\mathrm{i},\mathrm{t}},\end{array}$$

(1)

and

$$\begin{array}{rl}\mathrm{Cust}\mathrm{\_}\mathrm{Sati}{\mathrm{s}}_{\mathrm{i},\mathrm{j},\mathrm{t}}& ={\alpha }_{2,0}+{\alpha }_{2,1}\mathrm{Lobby}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\alpha }_{2,2}\mathrm{Mkt}\mathrm{\_}\mathrm{CE}{\mathrm{O}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{2,3}\mathrm{AD}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\alpha }_{2,4}\mathrm{RD}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{2,5}\mathrm{Product}\mathrm{\_}\mathrm{Lobb}{\mathrm{y}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\omega }_2\mathrm{Firm}\mathrm{\_}\mathrm{Control}{\mathrm{s}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\vartheta }_2\mathrm{Industry}\mathrm{\_}\mathrm{Control}{\mathrm{s}}_{\mathrm{j},\mathrm{t}-1}\\ & +\sum _{\mathrm{K}=1}^{\mathrm{t}-1}{\delta }_{2,\mathrm{K}}\mathrm{TIM}{\mathrm{E}}_{\mathrm{K}}+{\epsilon }_{2,\mathrm{i},\mathrm{t}},\end{array}$$

(2)

where Tobins_q is Tobin’s q, Cust_Satis is customer satisfaction, Lobby_Spend is lobbying spend, Mkt_CEO is CEO marketing background, AD_Spend is advertising spend, RD_Spend is R&D spend, and Product_Lobby is the firm’s product market lobbying. With Firm_Controls, we create a vector of firm-specific control variables (including lobbying visibility) for each firm i, whereas Industry_Controls is a vector of industry-specific control variables for firm i operating in the primary two-digit SIC industry j (see Table 2). In Equation 2, we include average industry-level customer satisfaction (Ind_Cust_Satis) as an industry-specific control variable to rule out any covariations in industry customer satisfaction and lobbying that may influence our results. We include time dummies for each observation year to account for macroeconomic factors that influence all firms. Finally, ${\epsilon }_{1,\mathrm{i},\mathrm{t}}$ and ${\epsilon }_{2,\mathrm{i},\mathrm{t}}$ are the idiosyncratic error terms.

Next, we specify the following equation to test H₄–H₆, with the same firm- and industry-specific control variables as in Equation 2:

$$\begin{array}{rl}\mathrm{Cust}\mathrm{\_}\mathrm{Sati}{\text{s}}_{\mathrm{i},\mathrm{j},\mathrm{t}}=& {\alpha }_{3,0}+{\alpha }_{3,1}{\mathrm{Lobby}\mathrm{\_}\mathrm{Spend}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\alpha }_{3,2}\mathrm{Mkt}\mathrm{\_}\mathrm{CE}{\mathrm{O}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{3,3}\mathrm{AD}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\alpha }_{3,4}\mathrm{RD}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{3,5}\mathrm{Product}\mathrm{\_}\mathrm{Lobb}{\mathrm{y}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{3,6}\mathrm{Lobby}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\times \mathrm{Mkt}\mathrm{\_}\mathrm{CE}{\mathrm{O}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{3,7}\mathrm{Lobby}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\times \mathrm{A}\mathrm{D}\mathrm{\_}{\mathrm{Spend}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{3,8}\mathrm{Lobb}\mathrm{y}\mathrm{\_}{\mathrm{Spend}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\times \mathrm{R}\mathrm{D}\mathrm{\_}{\mathrm{Spend}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{3,9}\mathrm{Lobb}\mathrm{y}\mathrm{\_}{\mathrm{Spend}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\times \mathrm{Produc}\mathrm{t}\mathrm{\_}{\mathrm{Lobby}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\omega }_3\mathrm{Fir}\mathrm{m}\mathrm{\_}{\mathrm{Controls}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\vartheta }_3\mathrm{Industr}\mathrm{y}\mathrm{\_}{\mathrm{Controls}}_{\mathrm{j},\mathrm{t}-1}+\sum _{\mathrm{K}=1}^{\mathrm{t}-1}{\delta }_{3,\mathrm{K}}\text{TIM}{\text{E}}_{\mathrm{K}}+{\epsilon }_{3,\mathrm{i},\mathrm{t}}.\end{array}$$

(3)

Model Identification

The set of independent variables identified in the previous subsection cover important firm and industry factors that could influence customer satisfaction and Tobin’s q. However, for credible identification of the effects it is necessary to consider the potential endogeneity that could arise due to simultaneity and omitted variables (Germann, Ebbes, and Grewal 2015).

Although we use lagged independent variables in Equations 1–3 to account for reverse causality (e.g., Rego, Morgan, and Fornell 2013), the analyses still might suffer from endogeneity bias due to omitted variables. To alleviate this concern, we include time fixed effects in all our focal equations. Consistent with unobserved effect models (Germann, Ebbes, and Grewal 2015), year fixed effects help control for the omitted variables, and including the average industry-level customer satisfaction (Ind_Cust_Satis) as an industry-specific control variable helps rule out covariation in industry customer satisfaction and lobbying that may influence our results.

Although these efforts reduce concerns about omitted variables, we cannot theoretically claim that lobbying is uncorrelated with the error term in Equation 2 (Angrist and Pischke 2008). Thus, we specify a fourth equation with lobbying as the dependent variable, the exogenous variables from Equations 1 and 2 as independent variables, and two variables that meet the criteria for preserving the rank and order conditions of the system of equations. In detail, among industry-based excluded variables, the first instrument that meets the exclusion restriction criterion is average industry lobbying (total industry lobbying expenditures, excluding focal firm lobbying expenditures, divided by number of entities lobbying in that industry as given in opensecrets.org), as an instrument for firm-specific lobbying. Because there are multiple firms in an industry, it is unlikely that average industry lobbying correlates with firm-level omitted variables that influence a focal firm’s customer satisfaction. This variable also meets the relevance condition, because peer firm behavior can have a normative effect in that peer firms generally face similar market conditions.

The second instrument is the total number of lobbyists operating in an industry. The industry supply of lobbyists should normatively influence lobbying spend. The greater the total industry expenditure on lobbying, the more lobbyists are likely to be operating. It also is reasonable to assume that the cost of lobbying is lower for firms that operate in industries with more lobbyists. This information, available to all firms within an industry, is unlikely to correlate with unobserved firm-level variables that affect a focal firm’s customer satisfaction, so it meets the exclusion criteria. Accordingly, we specify the following equation and add it to our system of equations:

$$\begin{array}{rl}\mathrm{Lobby}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}}=& {\alpha }_{4,0}+{\alpha }_{4,1}\mathrm{Industry}\mathrm{\_}\mathrm{Lobb}{\mathrm{y}}_{\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{4,2}\mathrm{Num}\mathrm{\_}\mathrm{Lobbyis}{\mathrm{t}}_{\mathrm{j},\mathrm{t}-1}+{\alpha }_{4,3}\mathrm{Mkt}\mathrm{\_}\mathrm{CE}{\mathrm{O}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{4,4}\mathrm{AD}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\alpha }_{4,5}\mathrm{RD}\mathrm{\_}\mathrm{Spen}{\mathrm{d}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\alpha }_{4,6}\mathrm{Product}\mathrm{\_}\mathrm{Lobb}{\mathrm{y}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}+{\omega }_4\mathrm{Firm}\mathrm{\_}\mathrm{Control}{\mathrm{s}}_{\mathrm{i},\mathrm{j},\mathrm{t}-1}\\ & +{\vartheta }_4\mathrm{Industry}\mathrm{\_}\mathrm{Control}{\mathrm{s}}_{\mathrm{j},\mathrm{t}-1}+\sum _{\mathrm{K}=1}^{\mathrm{t}-1}{\delta }_{4,\mathrm{K}}\mathrm{TIM}{\mathrm{E}}_{\mathrm{K}}+{\epsilon }_{4,\mathrm{i},\mathrm{t}},\end{array}$$

(4)

where Industry_Lobby and Num_Lobbyist are the average lobbying expenditure and number of lobbyists, respectively, for firm i operating in the primary two-digit SIC code industry j. The control variables are as described in Equation 2.

Before discussing our results, we note that the results of Hansen’s J test reveal that the instruments are valid (p > .10). The Kleibergen–Paap test also shows that our instruments are relevant (p < .00), increasing our confidence in the use of these variables as instruments. Likewise, we examine the instrument effects on firm lobbying (Table 4, Column A). Industry lobbying has a negative, nonsignificant effect on firm lobbying (α_4,1 = −.01; p > .10), and industry lobbyist supply has a negative, significant effect on lobbying (α_4,2 = −.00; p < .01). ⁷

Table 4.

Effect of Lobbying on Customer Satisfaction and Customer Focus Moderation.

	Main Effects Model (H 1 –H 3 )			Interaction Effects Model (H4–H6)
Construct	(A) Lobbying	(B) Tobin’s q	(C) Customer Satisfaction	(D) Lobbying	(E) Tobin’s q	(F) Customer Satisfaction
Lobbying (H1, H2)		4.70*** (1.67)	−8.37*** (1.99)		4.52** (1.77)	−12.20*** (2.30)
Customer satisfaction (H3)		.03** (.01)			.03** (.01)
CEO marketing background	.01 (.01)	.08 (.11)	−.37 (.27)	.01 (.01)	.08 (.11)	−1.11*** (.33)
Advertising spend	1.02*** (.36)	−1.68 (2.92)	7.15* (4.08)	1.03*** (.36)	−1.54 (2.97)	2.87 (4.09)
R&D spend	.27 (.23)	12.26*** (2.93)	4.81 (5.30)	.27 (.23)	12.26*** (2.92)	−.73 (6.02)
Product market lobbying	.10*** (.02)	−.03 (.24)	1.15** (.48)	.10*** (.02)	−.00 (.25)	1.22** (.47)
Lobbying × CEO marketing background (H4)						12.33*** (3.18)
Lobbying × Advertising spend (H5a)						19.51*** (4.95)
Lobbying × R&D spend (H5b)						57.60* (32.99)
Lobbying × Product market lobbying (H6)						8.98*** (3.31)
Firm size	−.00** (.00)	.00* (.00)	−.00*** (.00)	−.00** (.00)	.00 (.00)	−.00*** (.00)
Leverage	−.07 (.06)	1.00** (.44)	1.44 (1.09)	−.07 (.06)	.99** (.43)	1.24 (1.01)
Profit	−.33*** (.12)	8.18*** (1.19)	−1.34 (1.96)	−.33*** (.12)	8.12*** (1.19)	−.05 (2.05)
Industry concentration	−.22*** (.06)	1.02** (.47)	1.66 (1.47)	−.22*** (.06)	1.02** (.47)	1.22 (1.47)
Industry growth rate	.06 (.06)	.93* (.50)	.99 (1.76)	.06 (.06)	.94* (.50)	.86 (1.71)
Regulated industry	.03** (.01)	−.05 (.12)	−2.16*** (.49)	.03** (.01)	−.04 (.12)	−2.37*** (.49)
Lobbying visibility	−.00 (.00)	.02 (.02)	−.14** (.06)	−.00 (.00)	.02 (.02)	−.13** (.06)
Industry customer satisfaction	−.01*** (.00)		.74*** (.04)	−.01*** (.00)		.73*** (.04)
Industry lobbyists	−.00*** (.00)			−.00*** (.00)
Industry lobbying spend	−.01 (.04)			−.00 (.04)
Year fixed effects	Yes	Yes	Yes	Yes	Yes	Yes
Constant	.61*** (.12)	−2.44** (1.19)	20.92*** (3.10)	.61*** (.13)	−2.61** (1.22)	21.84*** (3.08)
Log-likelihood	−2,593.35			−2,582.10
Akaike information criterion	5,360.71			5,346.19
Observations	758			758

*p < .10, **p < .05, ***p < .01.

Notes: Robust standard errors are in parentheses. We scale lobbying and all its interaction terms by 10³ for visual consistency.

Estimation

We estimate two systems of equations. The first (Equations 1, 2, and 4) tests H₁–H₃, whereas the second system (Equations 1, 3, and 4) tests H₄–H₆. We have multiple equations in which the errors across them can be correlated, so we estimate the equations jointly using a structural equation model approach with correlated errors. Joint estimation across multiple equations yields more efficient estimates (Wooldridge 2010), accounts for endogeneity due to common omitted variable bias (Drukker 2014), and has been used to test mediation, moderation, and moderated mediation relationships in the presence of endogenous regressors (e.g., Winterich, Gangwar, and Grewal 2018). ⁸ Although H₄–H₆ focus on the simple moderation of the lobbying–customer satisfaction relationship, with a system of equations estimation approach, we can examine moderated mediation of the lobbying–Tobin’s q relationship as well.

Results

Model-Free Evidence

Prior to conducting the formal analyses for hypotheses testing, we describe our data using model-free evidence. By comparing mean customer satisfaction values across firms with high and low lobbying levels, this evidence reveals that lobbying is negatively associated with customer satisfaction. Customer satisfaction scores are 79.55 for low-lobbying-level firms as compared with 78.36 for high-lobbying-level firms, using a median split. When comparing the top and bottom quartile (decile), customer satisfaction is 78.45 (78.71) for low-lobbying-level firms and 77.91 (77.68) for high-lobbying-level firms.

Model-free evidence also shows that higher customer satisfaction is associated with each of our four moderators, including a CEO with a marketing background (in firms with above-median customer satisfaction, 26% have a marketing CEO, whereas this number is 18% for firms with below-median customer satisfaction), higher advertising spend (.51 for above-median customer satisfaction firms and .32 for below-median firms), higher R&D spend (.25 for above-median customer satisfaction firms vs. .22 for below-median firms), and a greater proportion of product market lobbying (.54 for above-median customer satisfaction firms and .49 for below-median firms). We hold lobbying constant at a high level and compare customer satisfaction scores of firms that score high on the moderating variables with the scores of firms that score low on these variables. For firms with a marketing CEO, customer satisfaction scores are 80.61, versus 77.80 for firms with a CEO with a different functional area background. High advertising spend produces a customer satisfaction score of 80.01, whereas low advertising spend is 76.45. High R&D spend is 79.73, versus 76.91 for low R&D spend. Finally, customer satisfaction is 76.46 for firms that lobby for product market issues relative to 75.05 for firms that lobby for non–product market issues. Taken together, model-free evidence supports key predictions outlined in our hypotheses, which we test in the following subsection.

Hypothesized Results

Table 4 provides the results of our empirical analyses and hypotheses tests. Recall that Table 4, Column A, displays results of our instrument tests. Column B contains the results of our test of H₁. Lobbying has a significant, positive effect on Tobin’s q (α_1,1 = 4.70; p < .01), in support of H₁ and validation of past findings. That is, we confirm a direct effect of lobbying on firm value, even when accounting for customer satisfaction. We also find a positive association between Tobin’s q and customer satisfaction (α_1,2 = .03; p < .05), R&D spend (α_1,5 = 12.26; p < .01), and profit (ω = 8.18; p < .01). The results from Equation 2, shown in Table 4, Column C, indicate a significant negative effect of lobbying on customer satisfaction (α_2,1 = −8.37; p < .01), in support of H₂. Notably, the negative effect of lobbying on customer satisfaction occurs independent of our lobbying visibility control (ω = −.14; p < .05), explained previously in our sample and data section and described in Table 2. That is, our results establish a negative effect of firm lobbying on customer satisfaction, regardless of whether customers are aware of firm lobbying. Among other controls, we find that operating in a highly regulated industry lowers customer satisfaction ( $\vartheta$  = −2.16; p < .01).

Customer Satisfaction Mediation

We use the path modeling framework by Zhao, Lynch, and Chen (2010) to test for mediation. As detailed in Table 4, lobbying has a significant, negative effect on customer satisfaction, which has a significant, positive effect on Tobin’s q. The mediation test of the indirect path from lobbying to Tobin’s q through customer satisfaction (lobbying → customer satisfaction → Tobin’s q) is significant. It is the product of the lobbying to customer satisfaction path (lobbying → customer satisfaction) and the customer satisfaction to Tobin’s q path (customer satisfaction → Tobin’s q). The indirect effect of lobbying through customer satisfaction on Tobin’s q is negative and significant (β = −.22, 95% confidence interval [CI] = [−.40, −.04]). Customer satisfaction partially and negatively mediates (competitive mediation) the effect of lobbying on Tobin’s q, as we predicted in H₃. The total effect (sum of direct and indirect effects) of lobbying on Tobin’s q (β = 4.49, 95% CI = [1.23, 7.74]) is smaller than its direct effect (β = 4.70, 95% CI = [1.43, 7.98]), which indicates competitive mediation (Zhao, Lynch, and Chen 2010), such that the direct and indirect effects are in opposite directions. The direct benefits of lobbying are larger than previously identified when we consider the negative counteracting effect of customer satisfaction. The lobbying–customer satisfaction path accounts for 4.90% of the total effect of lobbying on Tobin’s q.

Customer-Focused Moderation

CEO background

The results in Table 4, Column F, show that a CEO’s marketing background significantly and positively moderates the lobbying–customer satisfaction relationship (α_3,6 = 12.33; p < .01), in support of H₄. The negative effect of lobbying on customer satisfaction decreases, from significantly negative (β = −6.14, 95% CI = [−11.89, −.40]) to positive, though nonsignificant, when a firm has a CEO with a marketing background (β = 6.19, 95% CI = [−1.52, 13.89]). This result is consistent with our expectation that a marketing-focused CEO can align the firm’s focus with customers, which lessens the negative effect of lobbying on customer satisfaction.

Advertising spend and R&D spend

Table 4, Column F, also shows that firm advertising spend and R&D spend each positively and significantly moderate the lobbying–customer satisfaction relationship. As we predicted in H_5a, the interaction involving advertising spend is positive and significant (α_3,7 = 19.51; p < .01), such that the negative effect of lobbying on customer satisfaction decreases with greater advertising spend, and this effect is significantly negative at low (−1 SD) advertising spend (β = −5.43, 90% CI = [−10.26, −.60]) but is nonsignificant at higher (+1 SD) advertising spend (β = −3.22, 90% CI = [−7.93, 1.48]). Similarly, we find a positive and significant interaction between lobbying and R&D spend (α_3,8 = 57.60; p <.10), in support of H_5b. The negative effect of lobbying on customer satisfaction decreases with an increase in R&D spend, and this effect changes from significantly negative at lower (−1 SD) R&D spend (β = −6.51, 95% CI = [−12.19, −.83]) to nonsignificant at higher (+1 SD) R&D spend (β = −2.14, 95% CI = [−8.76, 4.48]). These results identify two important counterbalancing levers; firms can significantly lessen the negative effect of lobbying on customer satisfaction through advertising spend and R&D spend.

Product market lobbying

Product market lobbying significantly and positively moderates the lobbying–customer satisfaction relationship (α_3,9 = 8.98; p < .01; Table 4, Column F), in support of H₆. The negative effect of lobbying on customer satisfaction decreases with an increase in product market lobbying, and this effect changes from being significantly negative at lower (−1 SD) product market lobbying levels (β = −7.16, 95% CI = [−11.60, −2.72]) to nonsignificant at higher (+1 SD) levels (β = −1.49, 95% CI = [−8.75, 5.77]). We thus confirm our assertion that product market lobbying lessens the otherwise negative effect of lobbying generally on customer satisfaction.

Additional Moderated Mediation Analyses

Although we did not hypothesize moderating effects of CEO marketing background, advertising spend, R&D spend, or product market lobbying for the indirect effect of lobbying on Tobin’s q through customer satisfaction, we conduct additional moderated mediation analyses to estimate these conditional indirect effects. We find that lobbying has a significant, conditional, indirect negative effect on Tobin’s q through customer satisfaction, but only in the absence of a marketing CEO (β = −.17, 95% CI = [−.33, −.02]). The effect becomes positive, although nonsignificant, with a marketing CEO present (β = .17, 95% CI = [−.13, .48]). The conditional indirect effect also holds only at lower (−1 SD) advertising spend (β = −.15, 90% CI = [−.28, −.02]) and becomes nonsignificant at higher (+1 SD) advertising spend (β = −.09, 90% CI = [−.20, .02]); it similarly persists only at lower (−1 SD) R&D spend (β = −.18, 95% CI = [−.36, −.01]) and becomes nonsignificant at higher (+1 SD) R&D spend (β = −.06, 95% CI = [−.22, .10]). Finally, lobbying has a significant conditional indirect effect on Tobin’s q through customer satisfaction at lower (−1 SD) product market lobbying levels (β = −.20, 95% CI = [−.35, −.05]), but this effect is nonsignificant at higher product market lobbying levels (+1 SD) (β = −.04, 95% CI = [−.23, .15]). That is, customer-focused variables positively moderate the negative effect of lobbying on customer satisfaction and the negative indirect effect of lobbying on Tobin’s q through customer satisfaction. Put differently, when each of the moderators is at a low level, the conditional indirect effect of lobbying on Tobin’s q through customer satisfaction is negative. When each moderator is at a high level, there is no indirect effect. These findings highlight that firms can use these strategic levers to neutralize the negative indirect effect of lobbying on firm value.

Mediation Evidence of Customer Focus Loss

To further shed light on the relationship between lobbying and customer satisfaction, we provide empirical evidence regarding the loss of customer focus due to lobbying, as predicted by ABV theory. Specifically, we employ an accepted proxy for a firm’s customer focus using shareholder communications. Such communications (e.g., letters to shareholders, annual reports, conference calls) provide a clear and immediate measure of the firm’s priorities (e.g., Ridge, Ingram, and Hill 2017). These communications are scrutinized by many stakeholders, and therefore, firms are intentional about what they share. Further, these communications should reflect firm priorities and key areas of strategic focus (Eklund and Mannor 2020). For example, prior research has linked such communications with the firm’s innovation priorities and outcomes (Yadav, Prabhu, and Chandy 2007).

For this study, we use earnings conference call transcripts to create a measure of a firm’s customer focus. Firms voluntarily disclose large volumes of information during earnings calls (e.g., Brown, Hillegeist, and Lo 2004). The calls also include question-and-answer sessions that capture information beyond the firm’s prepared remarks. Finally, noting their frequency, we believe these transcripts offer good potential for accurately capturing firm attention to (or away from) important priorities. In line with existing literature (e.g., Berger et al. 2020), we create a count of customer-focused words (using the dictionary created by Yadav, Prabhu, and Chandy 2007; Web Appendix B) in quarterly earnings call transcripts, as a percentage of the total number of words, and then take the mean value over four quarters in a fiscal year.

The resulting data set refers to earnings conference call transcripts for 75 firms. The mean customer focus value is .78%, and it ranges from .35% to 1.35%. We test whether this measure of customer focus mediates the lobbying–customer satisfaction relationship using the Preacher and Hayes (2008) Model 4 PROCESS macro with 10,000 iterations. Consistent with our expectations, lobbying has a negative effect on customer focus (β = −.34, 95% CI = [−.43, −.25]), which has a positive effect on customer satisfaction (β = 1.43, 90% CI = [.18, 2.69]). Customer focus significantly and negatively mediates the lobbying–customer satisfaction relationship (β = −.49, 90% CI = [−.94, −.05]), highlighting the pathway for this negative effect.

Robustness Checks

Counterfactual Analysis

We use a counterfactual analysis to estimate the effect of high lobbying on customer satisfaction and its indirect effect on firm value via customer satisfaction. Because we only observe firms in their actual high-frequency or low-frequency lobbying states, we identify their counterfactual matches (i.e., firms similar to them on other variables but with different lobbying) using the nearest-neighbor matching procedure (see Web Appendix C). Using this approach, we find that lobbying has a direct negative effect on customer satisfaction and an indirect negative effect on Tobin’s q via customer satisfaction. The results of this counterfactual analysis are consistent with the results of our focal study models.

Parallel Mediation Through Market Share

Along with providing evidence of competitive mediation in the lobbying–firm value relationship through customer satisfaction, we follow prior research guidelines that advise exploring alternative mediation explanations (Zhao, Lynch, and Chen 2010). According to regulatory capture theory, lobbying can positively affect firm value through other routes, such as when lobbying protects the industry status quo and allows dominant firms to gain power, hinder competitive market entries, and lower competition (Stigler 1971). In this case, lobbying should enhance firm value through an increase in its market share.

We empirically evaluate this parallel mediation. While simultaneously accounting for the lobbying → customer satisfaction → firm value relationship, we examine whether lobbying → market share → firm value indicates positive mediation. The formal test uses Preacher and Hayes’s (2008) Model 4 PROCESS macro with 10,000 iterations. We find that market share partially mediates the relationship between lobbying and firm value. Lobbying has a positive effect on market share (β = .03, 90% CI = [.00, .06]), which in turn has a positive effect on firm value (β = 1.32, 95% CI = [.50, 2.15]). Thus, market share significantly and positively mediates the lobbying–firm value relationship (β =.04, 90% CI = [.00, .09]). We acknowledge there may be other routes (e.g., taxes paid, contracts) but limit our approach to providing evidence of one additional path through which lobbying influences firm value.

Brand Equity as an Alternative Customer Outcome

We examine the effect of lobbying on an alternative customer outcome: brand equity. This variable refers to the outcomes and preferences that accrue to a branded option compared with those that accrue to a similar, nonbranded alternative (Ailawadi, Neslin, and Lehmann 2003). Brand equity captures awareness, familiarity, and brand associations, so it drives both new customer acquisition and customer retention (Stahl et al. 2012). To test for this effect, we adapt a sales-based brand equity measure (Ailawadi, Neslin, and Lehmann 2003; Datta, Ailawadi, and Van Heerde 2017) that reflects the revenue difference between branded and nonbranded alternatives. In our firm-level data, we lack measures of customer satisfaction or sales for nonbranded alternatives, so we proxy for their sales by taking the median of two-digit SIC sales. Thus, our measure of sales-based brand equity is the difference in firm revenue relative to industry median revenue (Han, Mittal, and Zhang 2017). The analysis reveals that lobbying has a negative effect on brand equity (β = −17.94; p < .01), thus confirming our findings for another customer outcome (Web Appendix D, Column A).

Model Misspecification Tests

With a sequence of robustness checks, we ensure the validity of the focal relationship between lobbying and customer satisfaction. Web Appendix D presents complete reporting of these tests, which include analyzing a larger data set of ACSI firms by setting advertising spend and R&D spend to 0 if they are not reported (Column B), constructing a data set of firms not included in our sample due to missing observations for our covariates (Column C), analyzing all data to include firms that do not report both advertising expenditures and R&D expenditures (Column D), testing the effect of lobbying on the difference between a firm’s customer satisfaction value and average industry customer satisfaction value to account for industry effects in a different way than controlling for them (Column E), and scaling firm lobbying expenditures by the sum of its advertising expenditures and R&D expenditures to capture the relative strategic emphasis (Column F). Our focal results remain consistent in all cases, further strengthening the confidence in our findings.

General Discussion and Implications

Consistent with regulatory capture theory, lobbying is a positive driver of firm performance, and companies are likely to continue using it. However, our findings also reveal that costs of firm lobbying become apparent when accounting for customer effects. Specifically, we augment regulatory capture theory by building arguments using the ABV of the firm to explain how firm lobbying negatively affects customer satisfaction. To our knowledge, this investigation is the first to consider the prevalent, growing practice of firm lobbying in relation to customer outcomes. We advance research in marketing by showing that firm lobbying has a worrisome dark side: it reduces customer satisfaction, a critical customer performance outcome that is foundational to marketing theory and practice.

We also draw from the ABV perspective to suggest a set of moderators (CEO background, advertising spend, R&D spend, and product market lobbying), each of which lessens the negative lobbying–customer satisfaction relationship by preventing customer focus loss. We describe how these moderators, through aligning and counterbalancing means, orient the firm’s focus to customers and minimize the negative effects of lobbying on satisfaction. Finally, by testing for customer focus loss through shareholder communications, we provide empirical evidence that the negative effect of lobbying on customer satisfaction is driven by a decrease in a firm’s attention to its customers. These findings provide insights into how lobbying hurts customer outcomes. To the best of our knowledge, they offer the first empirical evidence that lobbying reduces the firm’s customer focus and thereby the customer satisfaction it achieves.

Managerial Implications

These findings have important takeaways for managers. Existing research on firm lobbying has not considered customer effects, which is surprising given the critical role of customers for firm growth and survival (Srinivasan, Vanhuele, and Pauwels 2010). Our research shows that firm lobbying strongly and negatively affects customer satisfaction, and we offer some preliminary evidence that it may negatively affect brand equity–related measures as well. Moreover, we find that lobbying erodes customer satisfaction at a faster rate than advertising spending can build it. Although raw lobbying spend is less than advertising spend, the negative effect of lobbying (β = −8.37) is greater than the influence of advertising spend (β = 7.15) on customer satisfaction (Table 4, Column C). Our mediation analysis (H₃) further suggests that if it is not accounted for, the indirect negative effect of lobbying on Tobin’s q through customer satisfaction can negate the benefits of a $\mathrm{\$}$ 1,000,000 increase in R&D spend, and the positive effects it would have on Tobin’s q, with an increase of only $\mathrm{\$}$ 55,727 in lobbying spend.

Fortunately, our findings reveal managerially relevant strategic levers firms can use to neutralize the negative indirect effect of lobbying on firm value. Taken together, moderation findings suggest that instead of keeping government affairs separate from marketing functions, the two should work together, through aligning and/or counterbalancing means, to enable firms to achieve the highest returns on their lobbying efforts. Indeed, our findings reveal useful synergies that can be derived from these firm attention–directing mechanisms.

As one example, we show that advertising spend and R&D spend counterbalance lobbying spend by reorienting collective firm attention to customers. These moderation findings also suggest that advertising spend and R&D spend serve as important signals of firm focus on customers to internal and external stakeholders and can combine with lobbying to produce firm benefits. Examples we cite from pharmaceuticals and medical device manufacturers highlight how some firms that spend considerably on lobbying use tools from the marketing environment to their advantage. The counterbalancing role of advertising spend and R&D spend is an additional benefit to the already well-known advantages that these expenditures produce for firms.

To the best of our knowledge, our study also is the first investigation to differentiate issues for which a firm can lobby in our model. We find that lobbying for product market issues, relative to non–product market issues, weakens the negative effect of lobbying spend on customer satisfaction. This finding suggests that not all lobbying activities are the same when it comes to their impact on customer satisfaction. Second, although this study just scratches the surface on how lobbying can affect customer outcomes, this moderating relationship suggests that some lobbying issues can reorient firm attention to customers. For example, Apple spent $6.65 million on lobbying in 2020 (opensecrets.org). Of those resources, although some were devoted to non–product market issues, some were devoted to product market issues, such as their music streaming division. Like Spotify, Pandora, and others, Apple lobbies for issues that allow the firm to provide customers greater access to different musical genres, artists, and albums. Although controversial among individual musicians and publishers, customers are the ultimate beneficiaries of this lobbying, via greater access and lower fees.

Additionally, we find that the negative effect of lobbying on customer satisfaction is weaker for firms with CEOs that have a marketing background, which we argue is because these CEOs direct collective attention to customers and align firm lobbying activities to be customer focused as well. This finding has major corporate governance ramifications. By effectively aligning two disparate environments (i.e., customer environment and regulatory environment), a marketing CEO can produce important, positive effects for the firm. These novel benefits provide another compelling reason to boards of directors engaged in top management recruiting for hiring a CEO with a marketing background.

Theoretical Contributions

A critical shortcoming of prior research that examines customer satisfaction antecedents is that most studies only note a firm’s product market strategies. Satisfaction is a function of customer expectations, perceived quality, and perceived value (Anderson and Sullivan 1993; Fornell, Morgeson, and Hult 2016), but firm lobbying can significantly influence all these dimensions. With this initial empirical evidence, grounded in compelling theory, we propose that a firm’s non–product market strategy (i.e., lobbying) can significantly influence product market performance. Additional non–product market activities and their role on customer outcomes warrant investigation and theoretical refinement to the broad customer satisfaction literature. For example, investigating firm attention to corporate social responsibility initiatives, relative to customer outcomes, also may identify surprising and unintended insights for customer satisfaction theories.

The ABV of the firm is still gaining momentum in marketing theoretical development. We provide one framework for how the ABV can be used in complement with extant theories for refined insights about firm behavior. We contribute to regulatory capture perspectives by identifying a critical shortcoming of this theory regarding firm attention to customers. Our theory development also orients firm lobbying behavior squarely in the marketing literature, representing a novel contribution. Foundational theoretical premises of the ABV suggest additional theoretical applications and extensions in marketing. For example, the manner in which a firm attends to various issues, stakeholders, and environments can have important implications for marketing intelligence dissemination and organizational learning (e.g., Gebhardt, Farrelly, and Conduit 2019). The ABV theoretical emphasis on creating attention structures and channeling that attention suggests that marketing theories about information flows may be ripe for integration. Finally, additional marketing outcomes beyond customer satisfaction may benefit from analysis through an ABV lens. Innovation theories, in particular, may be advanced by incorporating the nature of firm focus. Attention distribution may influence the extent to which key decision makers are able to produce radical versus incremental innovation possibilities for the firm, among other outcomes.

Theoretical premises of the ABV also may shed new light on research findings that reveal the perils of a dual firm focus. Different strategic foci have the potential to pull attention away from benefiting customers. As our findings on lobbying show, it can lead to undesirable customer and firm outcomes. Additionally, in the face of negative effects, it may be useful to determine whether firm attention was spread too thin, or senior managers struggled with strategically opposed priorities. We offer evidence in support of the ABV premises that a firm’s attention is even more constrained and limited than the expenditures it can dedicate to various initiatives. Through an ABV lens, we suggest that explicit consideration of firms’ limited attention capacity and the influential role of aligning and counterbalancing forces may help clarify prior findings. Our investigation refines theory around these two different mechanisms, building from Ocasio’s (1997) foundational premises. Although ABV literature has proposed moderators that attenuate negative effects from loss of focus (e.g., Eklund and Mannor 2020), our study is the first to show that different forces can redirect firm attention by using distinct yet complementary means. Future research should continue to disentangle aligning and counterbalancing mechanisms regarding firm attention and the ability to maintain desirable sources of focus.

Finally, in our empirical findings, lobbying is manifest in negative outcomes; customers experience reduced satisfaction regardless of their knowledge of firm lobbying behavior. Yet customers seek out information about such firm activities, and firms also increasingly communicate with customers about politically motivated behaviors (Hydock, Paharia, and Blair 2020; Moorman 2020; Seiders, Flynn, and Nenkov 2021). Consumer-side theory, related to perceptions and evaluations of firm attention diversion away from customer priorities, remains underdeveloped. Customers disapprove of strong business–government relationships, but why is that true? Although regulatory capture theory highlights the risks of government–business interaction, it is not clear that this theory’s premises about firms’ undue influence translates to customer perceptions and evaluations. Theoretical grounding of customers’ strong negative reactions to lobbying and the larger family of firm political influence strategies is critical and needed. With the rapid pace of many technological advancements, business–government interactions become increasingly relevant to customers, their consumption experience, and their overall well-being. Theoretical advancement must work to further import these interactions into marketing scholarship.

Public Policy Implications

The potential anticompetitive effects of lobbying, coupled with an erosion of customer satisfaction, suggest public policy implications of our results. Public sentiment suggests a growing distaste for lobbying and close ties between business and government, but few efforts have been made to curb the practice. Our findings suggest that greater limits may be warranted in some areas to promote positive customer outcomes. Although counterintuitive, greater lobbying limits may work to benefit firms, by redirecting focus to customers and by improving the quality of the firm’s long-term customer outcomes.

Regardless of whether greater limits on lobbying are imposed, our study supports the need for continued disclosure mandates. The Lobbying Disclosure Act gives customers, special interest groups, advocates, and researchers more information about the role of lobbying in modern business practice. Although this reporting necessarily creates a burden for firm compliance, it may have the unexpected benefit of showcasing when firms lobby for the customer’s interests, as in the music streaming example cited previously. When firms lobby for issues that benefit customers, mandatory disclosures can visibly signal a customer focus. Firms could use these disclosures as evidence in support of customer-focused lobbying.

However, there is also compelling evidence that the information contained in lobbying disclosure reports does not go far enough in either detail or metrics. In 2018, shareholder resolutions asking for greater transparency of lobbying activities were presented to 50 prominent U.S. companies (Smith and Keenan 2018). Currently, firms are required to disclose lobbying expenditures quarterly, but the information is very basic, and reporting can be inconsistent. Identifying specific dollar values devoted to any given issue would further understanding of lobbying’s performance outcomes. Greater detail about the direction of firm lobbying (i.e., in support of or against an issue) also would further research objectives and give customers and other stakeholders greater insight into a firm’s position on important issues. Indeed, our results show that lobbying issues matter, and clearer communication about them could benefit multiple stakeholders. Added scrutiny may further shift firm attention to customer-focused issues.

Further Research and Conclusion

Several additional research questions arise from our findings. First, we provide initial evidence that lobbying can lower customer satisfaction, and continued research could examine other firm political behaviors and their effects on customer outcomes. For example, studying customer awareness of lobbying might provide added nuance and reveal a customer-side path that parallels our firm-side focus. Second, although we focus on how lobbying affects customer satisfaction, we provide preliminary evidence that lobbying can influence other customer metrics such as brand equity. Future studies should examine the role of lobbying on customer metrics such as brand equity using additional measures. Third, firms frequently lobby to achieve specific goals. We know of no other studies of differential effects based on the issues being lobbied, so additional research is needed to disentangle the effect of specific lobbying issues, beyond just product market versus non–product market focus, on customer outcomes and firm performance. Perhaps product market lobbying issues lead to different outcomes according to individual areas of emphasis. Alternatively, lobbying effects seemingly might be weaker if the issues are further removed from a firm’s focal business domain (e.g., lobbying for environmental issues by a software company, lobbying for guns by an arts organization). Fourth, further research could explore antecedents of firm attention. For example, lobbying might increase market share, to the extent that it even might produce a monopoly. Firms that gain market share through lobbying also might exhibit greater hubris. Thus, in addition to their diverted attention, managers of these firms may have excessive confidence, which could lead them to discount customer priorities.

Firm lobbying has a worrisome dark side when accounting for customer effects. Although our research advances important findings about lobbying outcomes on customer satisfaction, we are only just beginning to realize the many ripple effects from political influence strategies on firm performance and the broader competitive market environment. We hope marketing researchers continue to investigate how marketing strategies and political strategies interface on a variety of firm and societal outcomes.