Measuring Corporate Political Sensitivity

Abstract

The sensitivity of U.S. firms to domestic political uncertainty is an under-conceptualized yet critical component of nonmarket strategy. Using financial and political prediction market data, we develop a panel measure of domestic political sensitivity at the industry level for the period of 2000-2012. We validate this measure in two ways. First, we model how covariates related to financial performance and industrial organization explain across-time and industry variation in sensitivity to the political status quo. Second, we demonstrate that our measure is associated with strategic political activity at the firm level: consistent with the literature on corporate political activity, higher levels of sensitivity correlate with a greater propensity to lobby and larger lobbying expenditures but do not significantly correlate with making campaign contributions.

Keywords: nonmarket strategy, corporate political activity, political sensitivity, regulation, government contracting, lobbying

JEL Classification: D72, G19