Two Faces of Corporate Lobbying: Evidence from the Pharmaceutical Industry
The North American Journal of Economics and Finance, October 2018
Posted: 31 May 2019
Date Written: October 8, 2018
In this study, we examine how political connections increase firms’ innovation performance. By examining firm-level lobbying activities, we find that political connections lead to a greater number of medical breakthroughs among pharmaceutical firms in our sample. We then examine the underlying ways that political connections enhance innovation among medical firms. Using hand-collected data on government subsidies, we find that politically connected firms have a higher chance of receiving subsidies from federal, state, or local government agencies. These government subsidies enhance medical innovation by insulating managers from short-term threats and mitigate their career concerns by creating a “failure tolerant” environment. Overall, we show that connections between firms and politicians come with increased innovation outcomes.
Keywords: Corporate lobbying, FDA approval, Innovation, Government subsidy
JEL Classification: D72, Q31, Q32, Q55
Suggested Citation: Suggested Citation