Political Activism and Market Power

73 Pages Posted: 6 Aug 2020 Last revised: 25 Apr 2022

See all articles by Elia Ferracuti

Elia Ferracuti

Duke University - Fuqua School of Business

Roni Michaely

The University of Hong Kong; ECGI

Laura Wellman

Pennsylvania State University; Pennsylvania State University - Department of Accounting; Penn State University

Date Written: April 24, 2022

Abstract

Politically active firms increase market power during times when their information advantage and influence is greater: during times of heightened policy uncertainty. The effect is especially pronounced among large politically active firms, and it is long-lasting and economically sizable. We also identify strategically timed large investments as one plausible mechanism whereby politically active firms enjoy abnormal profits. We overcome the nonrandom nature of political activism using instrumental variables and an experiment surrounding the enactment of legislation lobbied by sample firms. Our results suggest that political activism is a likely contributing factor to declines in competition over the last two decades.

Keywords: Market Power, Political Activism, Policy Uncertainty, Competition, Profitability, Profit Margins, Market Share, Capital Investment

JEL Classification: D72, G31, G38, P16

Suggested Citation

Ferracuti, Elia and Michaely, Roni and Wellman, Laura, Political Activism and Market Power (April 24, 2022). Swiss Finance Institute Research Paper No. 20-60, Available at SSRN: https://ssrn.com/abstract=3585372 or http://dx.doi.org/10.2139/ssrn.3585372

Elia Ferracuti

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-1974 (Phone)

Roni Michaely (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Laura Wellman

Pennsylvania State University ( email )

378 Business Building
University Park, PA 16802
United States
6026225683 (Phone)

Pennsylvania State University - Department of Accounting ( email )

University Park, PA 16802-3306
United States

Penn State University ( email )

University Park, PA 16802-3306
United States

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