Extending the market theory of corporate political activity

Scholars studying corporate political activity (CPA) have developed a market theory that has been widely accepted. This theory's ability to predict performance, however, has been equivocal. We argue that the predictability of the market theory for CPA could improve by accounting for three kinds of constraints that limit the possible actions of the politicians, the businesses, and other interested parties as they engage in CPA. These three constraints are the politician's ideology, the nature of his or her financial contributions, and the political trends among his or her constituents. All actors are limited by these constraints, but they also could impact them. We test our hypotheses upon a unique dataset and find support for our hypotheses. We argue that using this approach to understand the pressures facing the actors involved in CPA could help scholars find a more predictable link between CPA and firm performance.