Avoiding the Ties That Bind: Entrepreneurial Orientation and the Creative Constraint of Corporate Political Activity

Abstract

A widely accepted benefit of corporate political activities (CPA) is lowering a firm's overall level of uncertainty. Yet CPA is fundamentally an exchange: something is given for the benefit received. The exchange concept is important, as how a firm is strategically oriented will influence whether it deems the exchange worthwhile. We unpack one of the things given up in the CPA exchange – the loss of strategic flexibility, which occurs because CPA binds firms to the government, tends to be sticky in nature, and costs finite resources that firms could otherwise use to pursue different opportunities. In other words, CPA is a creative constraint, and this is too hefty a burden for entrepreneurially oriented (EO) firms, which are less offput by uncertainty and prioritize experimentation with market opportunities relative to their low EO counterparts. We also examine how the calculus of CPA changes based on two major ways the government treats rival firms: the provision of subsidies or the imposition of regulatory sanctions. We test our hypotheses on a sample of S&P 1500 firms and find support for our theorized model.