Shaping the rules of the game: How political capabilities affect financial performance

Abstract

This study contributes to the growing body of research that examines how political capabilities affect firms' financial performance. Although research has found mixed results for the state and local levels of the governance hierarchy, our study is the first that examines this important relationship at the supranational level. First, by building on the resource dependency theory and the capabilities-based view, we argue for a positive effect of the relationship. Second, considering that firms become politically active when their industry environment is uncertain, we argue environmental dynamism and munificence moderate this effect. Our findings support the hypothesis that political capabilities are positively related to firm profitability. This effect is magnified when firms operate in industries with high market dynamism. However, we find no effect whereby higher levels of munificence negatively moderate this link.