Corporate political activity and free riding under market uncertainty: An investigation of TARP funding

Date
2019
Authors
Brown, Lee Warren
De Leon, John A.
Rasheed, Abdul A.
Journal Title
Journal ISSN
Volume Title
Publisher
Wiley
Abstract

Given that the benefits of Corporate Political Activity (CPA) are usually granted in the form of favorable industry regulation that benefits all industry participants rather than a single firm, small politically inactive firms are often able to take advantage of the benefits from CPA without investing in them. We argue that the free‐riding problem is context specific. Situations of extreme uncertainty create institutional voids that enable individual firms to more fully appropriate the returns from their CPA. In this paper, we examine the influence that CPA had on the U.S. government’s disbursements of TARP funding in 2008. We find that politically active firms were able to avoid the free‐rider problem by obtaining more instances of TARP funding when compared to firms that were not politically active. In addition to being more likely to receive TARP funds, politically active firms received larger amounts of TARP funding than those firms who were not politically active.

Description
Article originally published in Business and Society Review, 124(1), 115–143. English. Published online 2019. https://doi.org/10.1111/basr.12165
Keywords
Free-rider problem, TARP fund distribution, Government intervention
Citation
This is the post-print version of an article that is available at https://doi.org/10.26681/jote.2019.030105. Recommended citation: Brown, L. W., De Leon, J. A., & Rasheed, A. A. (2019). Corporate political activity and free riding under market uncertainty: An investigation of TARP funding. Business and Society Review, 124(1), 115–143. This item has been deposited in accordance with publisher copyright and licensing terms and with the author’s permission.