Making Friends in Hostile Environments: Political Strategy in Regulated Industries

Abstract

We examine how regulated firms target their political strategies at multiple government institutions to gain more favorable regulatory agency decisions. Integrating the corporate political strategy literature and positive political theory literature, we derive propositions that (1) identify the political and regulatory circumstances generating hostile environments and (2) delineate the conditions under which firms will employ an indirect strategy instead of a direct strategy to induce changes in regulator decisions, identifying the specific political institutions a firm will target when adopting an indirect strategy. We develop a rich set of predictions about firms' political strategy that can form the basis for future empirical testing.