Do Firms’ Political Capabilities Increase Their R&D Investments? Evidence For Direct and Contingency Effects in the European Union

Abstract

Corporates’ political activities have been identified as important for affecting firm-level innovation outcomes. The present study examines the ways these corporate political activities may influence innovation inputs. We draw on the capability literature to theorize a positive relationship between political capabilities (i.e., firms’ organizational and strategic capacities to conduct political activities effectively) and firm-level R&D intensity. Moreover, we theorize on the contingencies of this relationship. Our hypotheses are tested by using a hand-collected data set in the context of the supranational European Union. The results of the regression technique confirm that political capabilities are positively related to R&D intensity. Market dynamism positively moderates the relationship between political capabilities and R&D intensity, whereas industry concentration negatively moderates the relationship. At a higher level of abstraction, our study makes important contributions to our understanding of how and under what conditions political activities relate to corporate innovation.

Keywords: political capability; political activity; R&D intensity; market dynamics; industry concentration; regression analysis