The Integration of Market and Nonmarket Strategies Revisited: Market Investments as Political Assets

Abstract

The literature on nonmarket activities stresses the importance for firms of integrating their market and nonmarket strategies. However, little has been done theoretically and empirically to push forward this concept. Building on political market theory and New Institutional Economics, we argue that integrating market and nonmarket strategies is not only about political activities facilitating the development of market strategies, but also about specific market investments serving as direct inputs in the development of nonmarket strategies. Because of the high level of transaction costs involved, however, firms in less regulated markets have to discover policy-makers’ preferences and thus diversify the market investments they integrate in their nonmarket strategy. These less regulated firms, also, might wait for election periods, i.e. times where policy-makers’ preferences get revealed, to refocus their investments on certain assets, while more regulated firms might tend to avoid these periods of intense political competition. We test and find support for our theory using a broad sample of US firms between 1998 and 2012. On average, during election periods, a 50% increase in lobbying expenses is associated with a $2.8 million increase in capital expenditures for firms in less regulated markets.