Title: Flexing Muscle: Corporate Political Expenditures as Signals to the Bureaucracy
Abstract: Regulatory agencies impose costs and benefits tailored to individual firms through their discretionary enforcement activities. We propose that corporations use political expenditures in part to “flex their muscles” to regulators and convey their willingness to fight an agency's specific determinations in the political arena. Because the signaling function of political expenditures is strategically complex, we derive a formal model wherein we demonstrate the existence of an equilibrium in which (1) large political donors are less compliant than smaller ones, but the bureaucracy monitors them less , and (2) firms with publicly observable problems reduce their political expenditures. We test the empirical implications of the model using plant-level data from the Nuclear Regulatory Commission on the inspection of 63 privately operated nuclear power plants and the political expenditures of their parent companies. We find strong evidence for the first prediction and qualified support for the second.
Publication Year: 2005
Publication Date: 2005-05-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 275
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot