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Diminishing Regulatory Capacity and Corporate Political Disengagement

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  • Choi, Dahyun
  • Lee, Kyuwon

Abstract

Although there are public concerns about the declining capacity of regulatory agencies and its impact on regulatory outcomes, such decline could also lead regulated firms to disengage themselves from politics. We examine whether and how firms reduce their campaign contributions in response to decreases in state-level regulatory capacity. To do so, we collect original datasets on the workforce size of U.S. state environmental agencies and leverage variations in workforce shocks that arise from the gap between actual and appropriated workforce sizes. Our analysis reveals that state environmental agencies' workforce shocks decrease firms' donations to state legislators, particularly to those in the majority party and the Democratic party, but do not affect firms' contributions to their ideological allies. We also find that existing state-level restrictions on corporate donations do not moderate firms' political responsiveness. Overall, this article provides a nuanced picture of how diminishing regulatory capacity could shape corporate political activities.

Suggested Citation

  • Choi, Dahyun & Lee, Kyuwon, 2024. "Diminishing Regulatory Capacity and Corporate Political Disengagement," OSF Preprints ymqds_v1, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:ymqds_v1
    DOI: 10.31219/osf.io/ymqds_v1
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    References listed on IDEAS

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    1. Gordon, Sanford C. & Hafer, Catherine, 2005. "Flexing Muscle: Corporate Political Expenditures as Signals to the Bureaucracy," American Political Science Review, Cambridge University Press, vol. 99(2), pages 245-261, May.
    2. Fouirnaies, Alexander & Hall, Andrew B., 2022. "How Do Electoral Incentives Affect Legislator Behavior? Evidence from U.S. State Legislatures," American Political Science Review, Cambridge University Press, vol. 116(2), pages 662-676, May.
    3. Stuckatz, Jan, 2022. "How the Workplace Affects Employee Political Contributions," American Political Science Review, Cambridge University Press, vol. 116(1), pages 54-69, February.
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