Corporate political action and R&D investments: complementary effects and the role of communication in overcoming ex-post transaction costs

Abstract

Purpose

This study aims to investigate the role of interfirm communication on the complementary effect between corporate political action (CPA) and research and development (R&D) investments under transaction costs.

Design/methodology/approach

A quasi-experiment study design was used, combining business game simulation and a public goods experiment with communication as a controlled variable. A fixed-effect regression analysis was performed on panel data collected from 72 students.

Findings

The findings indicate that collective CPA is positively and significantly associated with R&D investments, particularly when interfirm communication is present. Conversely, for non-communicating firms, the effect is limited to the relationship between individual CPA and R&D investment.

Research limitations/implications

Despite advancing the research on political ties and innovation, the study acknowledges limitations related to framing effects and institutional variability.

Practical implications

The complementary effects indicate that institutional arrangements (i.e. business associations) may foster interfirm communication and cooperation in CPA efforts, mitigating opportunistic behaviours and legitimising CPA strategy towards innovation.

Social implications

This study contributes to understanding how firms’ political and R&D decisions can positively impact innovation, despite the challenges of ex post transaction costs.

Originality/value

The positive effect of communication on political action and cooperation on firms’ innovation, even in weak institutional environments, is highlighted. An innovative methodological approach combining business games and economic experiments was used to examine participants’ decisions under transaction costs.

Citation

Westphal, F.K., Feldmann, P.R. and Mrtvi, V.d.O. (2024), "Corporate political action and R&D investments: complementary effects and the role of communication in overcoming ex-post transaction costs", The Bottom Line, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/BL-01-2023-0038