Using Political Connections to Raise Rivals’ Costs: Evidence from an Emerging Market

Abstract

In this paper, we leverage resource dependency theory to examine the impact of political connections on rivals’ costs and how this impact is affected by rival-side and politician-side contingencies. Using a panel dataset of Pakistani firms, our system generalized method of moments estimates show that politically connected firms can increase their rivals’ costs by influencing their rivals’ dependency relationship with the government. This impact is attenuated by the rivals’ strategic flexibility and social legitimacy, which provide some protection or insulation from political attacks in resource markets. Together, our findings extend the contingent dynamics of resource dependency in political markets from focal firms to competitors and offer significant contributions to the corporate political activity literature and resource dependency theory.