Corporate Strategy, Political Contributions and Corporate Risk-Taking

Purpose: Despite the importance and prevalence of corporate political activities in modern organizations, there remains limited insights on the potential relationship between political contributions and companies risk-taking activities. This study examines the relationship between monetary political contributions of firms and corporate risk-taking activities in the context of unstable political and economic environments. Design/methodology/approach: We employ a two-step system GMM estimation to investigate the subject using a cross-country sample of 307 firms from 22 countries covered over 2002–2017. In line with the previous studies, we control for various corporate governance mechanisms, firm-level factors and country-level characteristics. Findings: The findings demonstrate that firms that make monetary political contributions exhibit lower levels of risk as measured by different proxies for risks, namely, systematic, idiosyncratic and total risk. Practical implications: The results suggest that political contributions can be a useful mechanism to mitigate risk exposure. Also, the use of different risk measures and other factors for robustness fosters a better understanding of political connectedness in a more contextualized and dynamic manner. Originality: The current study seeks to contribute to the debate surrounding corporate strategy, political connectedness and corporate risk taking by using actual monetary political contributions as an explicit measure of political connection. The present study furthers scholarly understanding on the dynamics of corporate political activities using political contributions in monetary terms as a measure of political connectedness and its impact on risktaking. Furthermore, we explore this topic using insights from nonmarket strategy literature and studies on political contributions.