Interacting Corporate Political Activities with Evidence from the Tobacco Industry

Abstract

Research on firm-level corporate political activity often treats firm-government interactions as independent of the market competition between firms. Yet, firms that compete in the market will consider rivals when making strategic nonmarket decisions. Ignoring market rivalry when studying nonmarket strategy introduces fundamental endogeneity problems and potentially overlooks a central mechanism explaining firms’ political choices. Our study demonstrates this by investigating the strategic nonmarket interactions of large US tobacco manufacturers, a case study that is independently interesting. From 1992 to 2008, the US tobacco industry experienced dramatic upheaval in its business environment as regulatory authority shifted from the state to federal level, under the Food and Drug Administration. Using firm-candidate–cycle data, a complete information campaign contributions game, played in the nonmarket environment, is estimated for two of the United States’ largest tobacco manufacturers. Results demonstrate that, rather than acting in isolation, US tobacco firms strategically coordinated their firm-level political campaign contributions.