Corporate Spending in State Politics

Question 1

Firms attempt to shape their regulatory environments, often by making campaign
contributions to politicians

Answer 1

true

Question 2

Why do firms seek to influence public policy

Answer 2

1. Regulations shape the activities firms are allowed to conduct
2. Regulations are amendable to corporate influence, a phenomenon sometimes called
   cronyism, crony capitalism, or regulatory capture.

Question 3

Describe how regulations permit some activities and restrict others

Answer 3

1. Regulations vary not only across countries, but also across smaller jurisdictions within countries (e.g., offshore drilling is prohibited off the
   coast of Florida, but it is permitted in the other Gulf States).
2. Regulations can foster competitive advantages and disadvantages (e.g., for decades, alcohol distribution laws protected the market shares of large beer companies but limited the competitiveness of small craft brewers).

Question 4

Regulations can change quickly and unexpectedly, creating uncertainty, which can
inhibit long-term investment by making future returns more difficult to predict.

Answer 4

true

Question 5

Describe how regulations are amendable to corporate influence, a phenomenon sometimes called cronyism, crony capitalism, or regulatory capture.

Answer 5

1. Technical knowledge of the focal industries often is needed to assess the impacts
   of regulations. Thus, politicians often rely on outside input to make decisions.
2. Regulations are not an exogenous force. Rather, they result from negotiations
   among politicians, between politicians and firms, and perhaps among firms.
3. Firms shape regulations via campaign contributions, lobbying, and public relations
   campaigns. Political spending increases the propensity to shape regulations.
4. Some firms are proactive in this regard; it may be difficult to build relationships
   with politicians once problems arise (e.g., in the wake of the Deepwater Horizon
   disaster, it probably was too late for BP to start connecting with politicians).

Question 6

List factors that influence corporate spending

Answer 6

1. The Supreme Court’s Citizen United decision in 2010 opened the door to increased
   political spending by corporations, individuals, and other organizations (e.g., unions).
2. State and local elections can have national implications (e.g., influence which party holds
   the majority in the House or Senate). Thus, they often attract political spending from
   outside the respective regions and increase the money and other resources needed to win.
3. Firms engage in more political spending in jurisdictions where they are more dependent
   (e.g., because Exxon has a stronger presence in Louisiana than Vermont, it allocates more political spending to Louisiana)

Question 7

When do firms spend more in a state?

Answer 7

1. They are facing more negative media attention
2. They confront hostile social movement organizations
3. They have more knowledge of the political process and how to influence it.

Question 8

Firms engage in more political spending in states where relevant social movement organizations are better-funded and more powerful

Answer 8

true

Question 9

The ability to influence politicians is a capability that firms can learn.

Answer 9

true

Question 10

Top management team continuity tends to boost political spending, and politician turnover tends to reduce it (both factors affect firms’ uncertainty
about engaging with politicians, including the politicians’ preferences).

Answer 10

true

Question 11

List reasons corporate political spending is important

Answer 11

1. Firms contribute to economic growth
2. Regulations are supposed to prevent misconduct
3. Firms have the responsibility to promote stakeholders’ interests
4. Managers believe it is in the interest of the shareholders (or to advance their own interests)
5. Can distort gov policy in unproductive and productive ways