Exploring Corporate Political Activity (CPA) in China

This paper focuses on the utilization of corporate political activity (CPA), which is an important cultural and social element in China, and the impact of CPA on firm performance. This research proposes that corporate political activity (CPA), in the forms of lobbying, co-optation and China-specific political connections, increases a firm’s political influence, and hence secures firms’ legitimacy in regulatory aspects. CPA is positively related to firm performance, including reduced uncertainty, reduced transaction costs and increased long-term sustainability. Introduction Corporate political action (CPA) is always an interesting topic for management scholars since 1980s. CPA has been recognized as a source of sustainable competitive advantage. The underlying rationale for CPA is to improve the fortunes of the firm (North, 1990; Hillman and Hitt, 1999; Schuler et al., 2002b). In other words, it is intended to provide firms with access to the corridors of political power, reduce uncertainty (Hillman and Hitt, 1999), and subsequently empower firms with the ability to influence their competitive space (McWilliams et al., 2002; Capron and Chatain, 2008). Based on the previous studies, this paper proposes how CPA affects corporate performance. Firms’ Legitimacy and Corporate Political Activity Corporate political activity (CPA) is broadly defined as firms’ efforts to influence or manage political entities (Hillman, Keim, & Schuler, 2004). CPA is a form of nonmarket strategies, which are typically considered the firm’s efforts to manage the institutional or societal context of economic competition (Boddewyn, 2003). Like investments in certain market strategies (e.g., branding or positioning), nonmarket strategy, CPA, is considered attractive when the benefits from obtaining beneficial policy outweigh the costs (Mitchell, Agle, & Wood, 1997). There are different forms of CPA across countries, e.g., lobbying, co-optation, campaign contributions, executive testimony before legislators and regulators, operating a government relations office, and contributing to industry and trade political action committees (PACs) are all considered forms of CPA in the United States (Lux, Crook, & Woehr, 2011). Lobbying describes organizations' attempts to mobilize external institutional actors as advocates of their own interests (Reihlen, Smets, & Veit, 2010). Corporate lobbying is defined as “the informal exchange of information with public authorities” and “trying informally to influence public authorities" (Harris & Lock, 1996). It can be used to reduce constraints on the lobbying organization or to increase institutional pressure on its competitors (Oliver, 1991). Co-optation indicates a strategy of winning over powerful institutional constituents by incorporating them into the organization. For example, an organization may attempt to persuade an institutional constituent, i.e., politicians, trade union representatives, or investors, to join the organization or its board of directors (Oliver, 1991). First, co-optation can actively reduce external institutional constraints and enhance a firm’s legitimacy (Reihlen et al., 2010). Second, co-opting politicians can improve conditions for lobbying legislative bodies, and enable firm to have better access to information about profitable government contracts (Bresser & Millonig, 2003). When it comes to corporate political activities (CPA), it is inseparable from guanxi. Chinese