Politically Active Firms and Innovation Decisions: A Legitimacy Based View

Abstract

Corporate political activities (CPA) of a firm have long been viewed as a means of gaining legitimacy which help the firm to access to unique and vital resources. Although researchers have thus far widely examined the antecedents and the outcomes of CPA, top management teams (TMT) are less attention by CPA scholarship, not to mention the behavioral side of managerial perception is also relevant to their tendency to invest accessible resources on innovation. This paper aims to explore the innovation effect of CPA-active firms in their legitimacy-building process as a strategic response to institutional expectation. We attempt to make inquiries into why do CPA-active firms which are embedded agents, choose to innovate themselves and develop propositions upon if managerial perception affects the ways they bear the risk of innovation. Building upon the institutional theory and prospect theory, this paper suggests that firms with higher levels of CPA generate better innovation performance through their unique acquire rare and valuable resources, and are more aware, open and motivated to satisfy the institutional expectations. Further, we also propose that top management team factors will moderate the relationship between CPA and innovation. In the face of a sure-loss context, the top management team increases the propensity of risk-taking, which enhances the innovation effect of CPA intensity. Meanwhile, when the top management team is faced with a sure-gain context, it reduces the managerial propensity for risk-taking, which negatively moderates the innovation effect of CPA intensity. The study contributes to the corporate political activities literature and strategy research by bridging non-market strategy and market-favored outcomes and integrating institutional perspective and the behavioral logic for a more complete view of firm innovativeness than either theory alone.