Swayed by prior interactions? How government contracting acts as a substitute for lobbying activity

Abstract

We argue that because one of the key intentions of lobbying is to develop knowledge about the inner workings of the government, a crucial type of governmental interaction—government contracting—is associated with firms’ level of lobbying activity. We argue that firms’ contract scope (the number of governmental agencies in which they contract) is negatively related to firms’ lobbying activity because it provides firms with broader knowledge of the government. We further argue that the relationship between government contract scope and firms’ lobbying activity is moderated by the extent of government contract dispersion (distribution of contracts across government agencies), firms’ government contract dependence (proportion of firms’ revenue that is derived from the government), and firms’ industry contract scope (availability of new government agencies for contracting). We find support for most of our theoretical arguments in a sample of S&P 1500 firms for years 2008–2018.