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Master Thesis Examining the relationship between Corporate Political Activity and Corporate Financial Performance moderated by different aspects of Corporate Social Responsibility


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Master Thesis

Examining the relationship between Corporate Political Activity and Corporate Financial Performance moderated by different aspects of

Corporate Social Responsibility

University of Amsterdam

Department: Economics and Business

Master: Business Administration – International Business Thesis supervisor: Dr Ilir Haxhi

Second reader: Dr Mashiho Mihalache Author: Xiaoxi (Cathy) Liu

Student number: 13047949 Date: January 28, 2021


Statement of Originality

This document is written by student Xiaoxi (Cathy) Liu who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.



Firms tend to employ non-market strategies, corporate political activity (CPA), and corporate social responsibility (CSR) to enhance corporate financial performance (CFP) in response to growing social and political pressures. However, prior

researches are inconclusive on the CPA- CFP relation because of the single dimension of measurement and neglect of CSR’s impact on this relation. We re-examine the CPA-CFP relationship and explore CSR’s moderating influence. Based on Resource- Based View (RBV), we argue that the combination of information and financial CPA strategies positively impacts CFP by using complementary resources to develop more competitive advantages. Building on stakeholder theory, we further argue that CSR enforces the relationship between CPA and CFP by satisfying various stakeholders and increasing business legitimacy. We examine CSR's effect in two dimensions and argue that external CSR and the CSR in B2C industries impact the CPA-CFP relation more than internal CSR and CSR in B2B because external stakeholders’ trust creates a benign social and political environment for CPA. We test our hypotheses using empirical analysis on a data sample of 584 Fortune 500 firms from 2010-2016.

Although our results show a positive relationship between CPA and CFP, the aggregated CPA strategy does not always perform better than the individual CPA strategy. The outcomes of CSR’s moderation effect fail our expectation and indicate a negative impact in the B2C sector while showing no evidence of interaction in B2B industry, neither did external and internal CSR. Our study theoretically contributes by assessing different CPA strategies’ complementarity through RBV and measuring CSR's multi-dimensionality as a moderator by adding stakeholder theory to RBV. We practically provide insights into the relationship between CPA, CSR, and CFP for better decision-making by practitioners.

Keywords: Non-Market Strategy, Corporate Political Activity (CPA), Corporate Social Responsibility (CSR), Corporate Financial Performance (CFP), Industry Type (B2B vs. B2C), Resource-Based View (RBV), Stakeholder Theory, Fortune 500.


Table of Contents

1. Introduction ... 6

2. Literature Review ... 11

2.1 Corporate Political Activity (CPA) ... 11

2.1.1 Informational Strategies vs. Financial Strategies ... 12

2.1.2 CPA and Corporate Financial Performance (CFP) ... 13

2.2 Corporate Social Responsibility (CSR) ... 14

2.2.1 Internal CSR vs. External CSR ... 15

2.2.2 The relationship between CSR and CFP ... 16

2.3 The relationship between CPA and CSR ... 17

2.4 Industry and its relationships with CPA and CSR ... 18

3. Theoretical Framework ... 19

3.1 The Direct Relationship between CPA and CFP ... 21

3.2 The Moderating Role of CSR on CPA and CFP ... 25

3.2.1 External and Internal CSR moderating aggregated CPA-CFP ... 26

3.2.2 External and Internal CSR moderating individual CPA-CFP ... 27

3.2.3 CSR in different industry types moderating CPA-CFP ... 29

3.3 Conceptual Model ... 32

4. Data and Method ... 33

4.1 Data Collection and Sample ... 33

4.2 Variables ... 33

4.2.1 Dependent Variables: CFP ... 33

4.2.2 Independent Variables: CPA ... 34

4.2.3 Moderating Variables: ... 34

4.2.4 Control Variables ... 35

4.3 Methodology ... 36

4.3.1 Model equation ... 37

5. Analysis and Results ... 39

5.1 Descriptive Statistics ... 39

5.2 Correlations and Multicollinearity ... 41

5.3 Regression and Moderation Analyses ... 43


5.3.1 Direct Relationship: CPA – ROA ... 44

5.3.2 Direct Relationship: CPA – ROI ... 45

5.3.3 Moderation Effect of CSR on CPA – ROA ... 47

5.3.4 Moderation Effect of CSR on CPA – ROI ... 49

5.3.5 Moderation Effect of CSR in different Industry Type on CPA – ROA ... 50

5.3.6 Moderation Effect of CSR in different Industry Type on CPA – ROI ... 52

6. Discussion ... 54

6.1 Findings ... 54

6.1.1 Relationship between CPA and CFP ... 55

6.1.2 Moderation effect of CSR on CPA and CFP relation ... 56

6.2 Theoretical contributions ... 57

6.3 Practical contributions ... 59

6.4 Limitations ... 60

6.5 Directions for future research ... 61

7. Conclusion ... 62

References ... 65


1. Introduction

Within this digital age, companies confront more and more supervision and

challenges from the social environment and politics. It becomes particularly critical for practitioners to seek business legitimacy through non-market strategies, corporate political activity (CPA) and corporate social responsibility (CSR). The goal is to increase a firm’s competitive advantages and ensure sustainable development by incorporating heterogeneous resources which are in line with Barney’s (1991) resource-based view (RBV) (Girschik, 2020; Rodgers, et al., 2019; Lawton, et al., 2013).

According to RBV, using CPA as a strategy by making full use of resources to persuade the politicians or shape the regulations for the firm’s benefits should

contribute to profitability (Baron, 1995; Shaffer, 1995; Hillman, Keim & Schuler, 2004). However, scholars have not reached a consensus on how CPA strategies affect corporate financial performance (CFP). Some studies show a positive relationship between CPA and CFP (Hillman, Zardkoohi & Bierman, 1999; Lux et al., 2011), while others find a negative association (Cao, et al., 2018). Lawton et al. (2013) argue that the CPA strategy brings different financial performance results because they choose separate approaches, such as information strategy and financial incentive.

Previous research focused mainly on the individual approach of CPA to assess its impact on CFP. For example, Chen et al. (2015) emphasize the influence of lobbying (the information strategy) on CFP, and Aggarwal et al. (2012) concentrate on the association between the financial incentive strategy and CFP. Those studies isolate the


approaches and disregard how their interaction effects CFP (Lawton et al., 2013).

Hence, more research remains to be attained to achieve a comprehensive conclusion on the CPA-CFP nexus by taking both information and financial strategies into account. This paper re-examines such linkage with the following research question, intending to untangle the relationship:

RQ1: To what extent do the CPA strategies (aggregated CPA, individual information strategy, or financial incentives) impact financial performance?

We argue to find a more substantial positive relation between CPA and CFP when firms utilize both information strategy and financial incentives. Our research is based on Barney's (1991) RBV, which demonstrates the importance of

complementary effects on a firm's specific resources in enhancing competitiveness.

Information and financial strategies rely on the firm’s political resources and financial capabilities respectively. Combining these two resources in CPA configuration can lead to sustainable performance (Lawton et al., 2013). Besides, considering the inconsistency of the CPA-CFP relation in previous studies, Beurden & Goessling (2008) claim that a single research dimension of CPA might cause the conflict results, which is another reason we conduct this research to evaluate the influence on CFP by considering both CPA strategies.

Furthermore, to examine the relationship between CPA and CFP, we should not ignore another crucial non-market strategy: CSR, because solely depending on the RBV theory in studies is not sufficient to test the relationship. According to


Freeman’s (1984) stakeholder theory, CSR confirms that firms should keep all the stakeholders’ interests in mind, including social and political ones. Scholars initially considered CPA and CSR to be independent or contradictory (Mellahi et al., 2016;

Baron, 1995), but they gradually contemplated their complementary relationship, as well as their combined effect on CFP (Liedong et al., 2015; Hadani & Coombes, 2015; Rehbein et al., 2018).

The research of the relationship between CSR and CFP, similarly to research on the impact of CSR on CPA and CFP, show inconsistent outcomes (Wang & Choi, 2013; Lima et al., 2011; Hadani & Schuler, 2013). Scholars claim that CSR should be classified into two groups as internal and external, related to internal and external stakeholders’ benefits, respectively (Hond et al., 2014; Orlitzky et al., 2003). What is more, CSR in different industry segments, like Business to Business (B2B) or

Business to Consumer (B2C), have a different extent of visibility and social pressure to influence CPA and CFP (McWilliams & Siegel, 2001). However, there has not been a lot of research about these multi-dimensional CSR’s moderating function on the CPA and CFP relation. To bridge this gap, we investigate the influence of CSR on the CPA-CFP nexus subsequently, by addressing the second research question:

RQ2: To what extent is the relationship between CPA and CFP moderated by CSR (external vs. internal or in different industry types)?

Based on stakeholder theory, we argue that using CSR as a strategy to increase legitimacy by fulfilling stakeholders’ interests, positively impact the CPA-CFP


relation. We measured the moderation effect by two aspects of CSR. First, we believe that external CSR has a bigger impact than internal CSR on the relationship between CPA and CFP. This is due to external CSR strategy focusing on the needs of external stakeholders, such as governments and local communities, who have more influence than internal stakeholders on the firm’s CPA performance (Tang et al., 2012; Wood &

Jones, 1995; Wang & Qian, 2011). Second, we believe it is not enough to only test CSR by its internal and external taxonomy. The industry segments should also be considered because firms in the B2C segment are more visible to the public than those in the B2B sector, which leads to more social pressure (Hoejmose et al., 2012;

McWilliams & Siegel, 2001). In line with the stakeholder theory, González-Benito &

González-Benito (2006) affirm that external challenges drive the companies in B2C business to engage in more CSR activities, and Hond et al. (2014) believe that the more CSR activities a company participates in, the higher the company’s CPA efficiency is. That is the reason we argue that CSR in the B2C segment impacts the CPA-CFP relation more than in the B2B segment.

To conduct empirical research, this study applies a quantitative approach through converging secondary data on the Fortune 500 database for the years 2010- 2016 and applying regression analysis. For the analysis for the relation between CPA and CFP, this paper adopts lobby expenditures and Political Action Committees (PAC) contributions as cumulative CPA investments (Schuler, Rehbein & Cramer, 2002) from OpenSecrets. This research employs the index of Return on Assets (ROA) and Return on Investment (ROI) from Datastream to evaluate CFP. To assess the


moderation effect of CSR on the CPA-CFP relation, we measure internal and external CSR using Kinder Lydenburg Domini (KLD) ratings from MSCI ESG. We will measure CSR in the B2B and B2C industries by Standard Industrial Classification (SIC) codes (Hoejmose et al., 2012).

Our research makes essential contributions to explain the relationship between CPA, CSR, and CFP. From a theoretical view, this study combines information and financial CPA resources to explain the influence of CFP by building on RBV. The results show that companies can gain competitive advantage by mixing heterogeneous resources, which attests the applicability of RBV theory. But our results also add that different resources may have a slightly offsetting effect to RBV. Although both the Information strategy and financial incentives have positive impacts on CFP, for some financial indicators, the information strategy with its delayed benefits weakens the financial incentives’ strong impact on the indicators when combining these individual CPA strategies. Moreover, this paper fills the gap with a lack of study on CSR’s moderation effect on the CPA-CFP relationship by introducing stakeholder theory to supplement the pure RBV theoretical basis. RBV focuses on the integration of the company's resources and lacks consideration of the interests of other stakeholders, whereas the CPA strategy not only focuses on resources but also considers political stakeholders and social pressures. Therefore, the introduction of CSR, including the views of internal and external stakeholders and the interests of stakeholders in different industries, and adding stakeholder theory expand the influence of social factors and various stakeholders. From a practical perspective, this study offers good


support for managers and investors with their strategic decision-making. Managers can better roll out non-market strategies to improve the firm’s profitability, and investors can predict the corresponding investment returns. Besides that, politicians and regulators can also utilize the findings to monitor or promote the firm’s CPA and CSR related behaviour in a more targeted manner.

The remaining thesis is structured as follows. Chapter 2 presents a summary of the literature on CPA, CSR, and their interaction with CFP. In chapter 3, we formulate the theoretical framework and the hypotheses. After that, chapter 4 offers a study on variable correlation and methodology. In chapter 5, we will discuss the results of the statistical analysis as well as its limitations. Finally, we outline the conclusion and suggestions for future research in chapter 6 and 7.

2. Literature Review

In the following chapter, we present a review of research concerning different CPA strategies, as well as the relation with firm performance. Later, we provide a literature review on distinct CSR aspects and their relationship with CFP. After that, we discuss the relationship between CPA and CSR and the literature regarding the moderating role of the industry type on the relation.

2.1 Corporate Political Activity (CPA)

CPA, one of the domains of non-market strategy, represents that the company participates in the formulation of government policies for the benefit of the company, especially to improve the performance and market share (Shaffer, 1995; Hillman,


Keim & Schuler, 2004). Scholars believe that the resources and capabilities of

enterprises are very important tools that can play a role in the political field and bring competitive advantages to enterprises. This also follows from the theoretical

framework of RBV (Barney, 1991; Hillman et al., 2004; Helfat & Peteraf, 2003;

Bonardi, Holburn & Berg, 2006).

Lawton et al. (2013) assert that the CPA’s function is a dynamic interplay process between firm and government. Politically oriented strategic activities, like market strategies, formulate a demand and supply relationship, in which companies are the “demanders” and governments or officials are policy “suppliers”. The

companies provide information and funds, while the supplier tends to offer demanded government policies and promote party elections that are beneficial to enterprises in exchange (Bonardi et al., 2006; Hillman & Hitt, 1999). The characteristics of this exchange relationship endorse an interdependence and a close connection between enterprises and governments (Herndon, 1982). However, CPA tends to involve ethical issues such as corruption and bribery that necessitate multi-dimensional research in this field (Lawton et al., 2013).

2.1.1 Information Strategies vs. Financial Strategies

Hillman & Hitt (1999) divide enterprises’ behaviour in politics into different types that can affect the public policy process: information strategy and financial incentives. A firm must understand the elementary political needs for information and capital to select the most appropriate types of CPA (Schuler, Rehbein & Cramer, 2002).


Lobbying is the dominant tactic of informational strategy that delivers efficient cooperation with regulators to influence legislation’s enactment via direct

communication (Slob & Weyzig, 2010; Hillman et al., 1999). By shaping the

regulation, companies can increase the bottom-line in different ways, such as creating industry entry barriers and receiving government subsidies or tax reliefs (Cao et al., 2018). Another primary CPA strategy entails financial incentives to achieve the benefits by supplying financial support and PAC contributions, which in turn provide companies with more voting rights and voices in formatting the system at the political level (Hillman et al., 1999; Hillman & Hitt, 1999; Hillman, Keim & Schuler, 2004).

Although the two CPA strategies mentioned above focus on distinct methods, many scholars believe they are not mutually exclusive. They even promote each other to enhance action results (Aggarwal et al., 2012; Hillman & Hitt, 1999). For example, Schuler, Rehbein & Cramer (2002) point out that lobbyists can ensure the maximum efficiency of lobbying through corporate PAC contributions. Notably, there is a complementary effect between lobbying and PAC contribution on maintaining the government-enterprise relations (Schuler, Rehbein & Cramer, 2002).

2.1.2 CPA and Corporate Financial Performance (CFP)

Based on the mutual influence between supply and demand of the CPA implementation between firms and government, scholars generally believe that CPA has a positive correlation with corporate performance (Shaffer, 1995; Baron, 1995;

Hillman et al., 2004). For instance, Lux et al. (2012) affirm that the time and money expended on lobbying brings a significant boost to performance in return. In contrast,


some studies have proved that CPA and CFP are negatively related (Hadani &

Schuler, 2013; Hersch et al., 2008; Igan et al., 2012). Scholars usually use different strategies, mainly lobbying and PAC contributions, to explore the relationship between CPA and CFP. Chen et al. (2015) and Igan et al. (2012) conduct their study only on lobbying while others focus on PAC contributions (Cooper et al., 2010).

Besides, Unsal, Hassan and Zirek (2016) suggest that there may be an optimal point where the firms can find a balance between the benefits from lobbying and the costs incurred. Findings indicate that controlling endogeneity is imperative to the relationship between lobbying and firm performance, and a negative association supports the conclusion that agency costs outweigh the strategic benefits. However, a negative correlation is not universal. It may be a positive correlation when firms are in the infant stage and encounter high growth (Cao et al., 2018).

2.2 Corporate Social Responsibility (CSR)

CSR is another substantial non-market strategy in addition to CPA. Scholars have been devoted to research on CSR for a long time. However, due to the diversity of influencing factors, the distinctiveness in different eras, and particular social contexts, the definition of CSR is still relatively controversial at this moment (Rodgers et al., 2019; Lin, Ho & Sambasivan, 2019; Mellahi et al., 2016). Bowen's (1953) preliminary conceptualization of CSR shows that companies should be

accountable for the business activities’ social impact, to a degree that goes far beyond the statements in a company's financial reports. Other scholars define such a

company’s social responsibility as that the company promotes the sustainable


development of the social economy by assisting employees, families, local

communities, and other social factors to improve the quality of life and satisfaction (Holme & Watts, 2000).

Some scholars believe that a company has a moral obligation towards a broader range of stakeholders, not only to take economic responsibilities but also to bear social and environmental responsibilities and anticipate bolstering society’s progress (Matten & Moon, 2008). However, McWilliams and Siegel (2001) claim that such social activities will lead to specific social attributes beyond a company's

commercial interests and commitments. Moreover, previous studies often take the CSR strategy as a single-dimensional subject (Harrison & Coombs, 2012;

McWilliams & Siegel, 2001); Carroll (1991), on the contrary, defines CSR as a multi- dimensional strategy and divides CSR into various categories.

2.2.1 Internal CSR vs. External CSR

There are many ways to categorize CSR, but the most common classification is based on internal actions, focusing on employee and constitutional governance, and external communications such as environmental protection, product safety and community coordination (Hawn & Ioannou, 2016; Orlitzky et al., 2003; Tang et al., 2012). Referring to the study of Orlitzaky, Schmidt and Reyens (2003), internal CSR activities intend to optimize the resource utilization efficiency by considering the organization’s culture, business structure, and human resources, while external CSR strategies deliver assurance to external stakeholders to build reliance and reputation.


Hawn and Ioannou (2016) define internal CSR as the integration of stakeholders’ expectations and the firm’s operational processes to increase

employee’s royalty and business sustainability. Scholars distinguish the outcomes of internal CSR from those of external CSR by external CSR's intention to accumulate the intangible assets by seeking social legitimacy (Hawn and Ioannou, 2016). Ginder and Kwon's (2019) study proves that both internal CSR and external CSR dominant in different CSR positions to conclude the congruence in those dimensions as a new antecedent to the firm’s strategic resolution.

2.2.2 The relationship between CSR and CFP

Regarding the relationship between CSR and CFP, the debate has lasted for decades since there are no conclusive outcomes (Wang & Choi, 2013). On the one hand, scholars have shown a positive link between CSR and CFP (Waddock &

Graves, 1997; Beurden & Gössling, 2008). McWilliams & Siegel’s (2001) research supports the positive results by assessing CSR’s equilibrium influence on the firm’s profitability. Scholars believe that analyzing the impact of CSR on corporate

profitability, from the perspective of RBV, will draw better conclusions. This is because the company's resources need to have characteristics that are not easy to imitate and irreplaceable, and this is exactly how CSR brings intangible assets to the company (Barney, 1991; McWilliams et al., 2006). McWilliams and colleagues (2006) assert that the value of CSR activities is that companies can gain better financial performance through the competitive advantages gained by their resources.


On the other hand, Wang & Choi claim that strategic consistency positively affects the CSR-CFP relationship, indicating a non-linear relationship, which contradicts previous studies. Zhao & Murrell (2016) find that broader firm samples over a longer period cannot generate a positive association between CSR and CFP.

Moreover, in developing economies, such as Brazil, a negative influence of CSR on CFP exists (Lima et al., 2011).

2.3 The relationship between CPA and CSR

Initially, CPA and CSR research are in two isolated fields (Mellahi et al., 2016). Nevertheless, Hond and his colleagues (2014) find that CSR and CPA

complement each other, and there is an enhanced positive impact by combining these non-market strategies. For instance, the CPA can determine a firm’s CSR tendency by communicating with regulators. CSR can also improve CPA’s efficiency by building legitimacy and a suitable social environment (Hadani and Schuler, 2013; Hond et al., 2014).

A newer trend is to combine CPA and CSR theories. Although institutional theory and stakeholder theory dominate the CSR arena so far, they cannot entirely explain global governance changes and the assumption of firms their political roles (Frynas & Stephens, 2015). Based on RBV (Barney, 1991), Hart (1995) assert that non-market strategies utilize firm-specific resources to change the social and political environment continuously.

Hond et al. (2014) prove that the alignment of the CPA and CSR strategies can improve the firm’s reputation while the transparency of the configuration and level of


institutional and social complexity affect the complimentary of CPA and CSR.

Liedong et al. (2015) disclose that the relationship between CPA and CSR moderates by trust level, whereas firms have obtained the trustworthiness to achieve success by combining both strategies.

2.4 Industry and its relationships with CPA and CSR

Researches embody that non-market strategies, namely CPA and CSR, differ across distinct industries, such as B2B and B2C sectors (Bonardi et al., 2006;

Hoejmose et al., 2012). The level of social visibility varies from different industries.

The firms in direct contact with consumers may face higher exposure, which implies that B2C industries have higher transparency than those in B2B industries (Hoejmose et al., 2012). Hoejmose et al. (2012) argue that a higher level of visibility brings more pressure and incentives for firms to implement CSR. In particular, B2C industries quickly attract spotlight from the media and other external challenges. This situation compels B2C-firms to enact CSR activities more actively, compared to those in the B2B sectors (Gonzalez Benito & Gonzalez Benito, 2006).

The study of Saiia et al. (2003) identifies similar findings that companies with greater business exposure in B2C confront greater scrutiny by more stakeholders. This social burden from a wide range of stakeholders leads to pressure on the decision- making on CSR activities as well as the CPA strategy (Bonardi et al., 2006; Bowen, 2000). Puck et al. (2013) find that different industry types like B2B and B2C can decide the validity of CPA strategies. The more visible the firms, the better the CPA's


effect. CPA, especially lobbying and PAC contributions can forge strong connections with regulators to reduce the social burden.

3. Theoretical Framework

This chapter presents the gaps in the prior studies and states the hypotheses together with the conceptual model. To justify our theoretical validation of the following hypotheses, we offer a rationale based on previous research shortcomings.

First, we realize that the relationship between CPA and CFP is still

controversial. Several pieces of research discover that CPA can promote the growth of CFP (Hillman et al., 1999; Lux et al., 2011; Chen et al., 2015), but other

investigations show a negative association between CPA and CFP (Cao et al., 2018;

Hadani & Schuler, 2013).

Building on RBV, we believe that using CPA as a non-market strategy, by utilizing firms’ resources to shape the political environment for firm-specific

competitive advantages, should promote a firm’s profitability. We think the effect will be more profound when a firm combines multiple of its resources for CPA. However, prior research on the relationship between CPA and CFP generally concentrates on a single aspect of CPA's strategies: either information strategy or financial incentives.

This makes it challenging to combine research results, and it might be one of the reasons for the inconclusive outcomes of some strategies (Lawton et al., 2013;

Beurden, & Goessling, 2008). The individual CPA strategies are not mutually exclusive. A firm employs different approaches and resources to pursue the


information strategy and financial incentives, which is in line with RBV, to strengthen its competitiveness. Hence, we examine the combined effect of information and financial CPA strategy on CFP and compare the effect of each CPA strategy on the results.

Second, merely using the RBV framework is not adequate to explain the CPA- CFP relationship. We need to include stakeholder theory and consider the impact of the other non-market strategy: CSR. Prior research considers CSR and CPA as segregated disciplines, or even counterparts (Baron, 1995; Liedong et al., 2015).

However, based on both RBV and stakeholder theory, companies should consider the corporate value and CSR status when formulating CPA strategies. The reason is that fulfilling political and social stakeholders’ expectations via different resources can reinforce the firm’s reputation to impact performance positively (Hond et al., 2014).

In non-market literature, previous researchers pay attention to the impact of CPA on the relationship between CSR and CFP through different aspects and

methods. However, few of them discuss CSR’s moderation effect on the relationship between CPA and CFP (Lin, Ho & Sambasivan, 2019). We argue that firms can treat CSR’s positive social influence as a lubricant when executing CPA strategies targeted at the government because a sound corporate image gives the government more incentive to issue policies beneficial to enterprises. Thus, this study regards CSR as the moderator on the CPA-CFP relationship to test the interaction influence and predicts a positive moderation effect.


Additionally, the lack of unified dimension of measurement is another gap in the existing studies of the CSR-CPA-CFP relationships (Beurden, & Goessling, 2008). CSR has various dimensions. One dimension is from the aspect of different stakeholders outside and inside the company. Scholars divided CSR into external and internal CSR that have distinct impacts on both CPA and CFP (Tang et al., 2012).

Both external CSR and internal CSR have their kind of activities, for example, events that are beneficial to the community or employees. Many scholars research the specific subdivision of CSR. Our study investigates CSR’s moderating role following Tang and colleagues’ classification (2012) by measuring the firm’s external and internal CSR. We believe that it is easier for a firm building a good reputation using external CSR than internal CSR, and therefore think it will have a more positive effect on the relation between CPA and CFP.

Regarding another dimension of CSR, firms in disparate industries like B2B or B2C emphasize varying CSR strategy degrees depending on their public exposure (Hoejmose et al., 2012). However, few pieces of research study the effect of the industry type on CSR to consider its comprehensive effect on the CPA-CFP relationship. These different types of industry have different visibility to the end consumer, which directly influences the effect of a specific CSR implementation.

Based on our previous argument, the social power of CSR will impact CPA and CFP.

This is the reason that this thesis also examines CSR’s moderation effect on the CPA- CFP relationship in the background of these different industries.

3.1 The Direct Relationship between CPA and CFP


The government has a tremendous power to rule the markets by imposing specific regulations. These kinds of politics increase the uncertainty for companies.

Consequently, firms have to implement coping strategies to reduce uncertainties and increase competitiveness (Hillman & Hitt, 1999; Shaffer, 1995). CPA, as one

prominent non-market strategy, plays a crucial role in constructing the political connections. Research finds these political connections beneficial for firms in multiple ways, such as lower taxation, bigger market shares, and higher financial returns (Claessens et al., 2008). However, preceding studies have inconclusive outcomes about the connection between CPA and CFP. Studying the relation over a single dimension with different measurements can be the reasons that cause the previous contradictory research results (Hillman et al., 2004; Orlitzky et al., 2003).

Based on RBV theory, we suppose that the CPA strategy can amplify the growth of CFP, especially by combining different CPA resources, (Barney, 1991).

From the perspective of RBV, firms execute CPA to reform the political process using all kinds of possible corporate resources, namely capital, human resources, or

business networks, to promote competitive advantages and corporate profitability (Frynas, Mellahi, & Pigman, 2006). Hadani & Coombes (2015) assert that companies continually provide information strategy and financial incentives to obtain public policies. According to Hillman et al. (2004), corporate PAC contributions and

lobbying are the most crucial CPA of firms in the political environment that represent information strategy and financial incentive, respectively. These two vital CPA strategies affect the CFP to varying degrees (Hillman et al., 2004). It leads us to argue


that the aggregation of information and financial strategies will positively influence the firms’ operation performance.

Building on RBV, the usage of complementary political resources, namely lobbying and PAC contributions, enlarge a firm’s competitive advantages and

guarantees the firm obtaining maximum benefits from the government (Schuler et al., 2002). Therefore, we argue that such alignment of CPA resources can create

sustainable competitive advantages and positively impact the CFP, and we establish the following hypothesis:

H1a: There is a positive relationship between CPA and CFP when firms execute aggregated strategies of both lobbying and PAC contributions.

We analyze each sub-tactic separately to compare the different effects between the aggregated CPA and individual CPA strategies. Firms that engage the information strategy, like lobbying, intend to influence official policies, but how will it influence the firms’ financial performance? Some researchers find a positive influence of lobbying on CFP (Chen et al., 2015; Lux et al., 2012), whereas others discover that lobbying shrinks CFP (Igan et al., 2012; Unsal et al., 2016).

Lobbying activities are trust-building processes with the policymakers. Such continuous interactions rely on the information exchanges and commonly lead to establishing a firm’s legitimacy and a healthy relationship with the government, which can offset unexpected risks and transaction costs (Hillman & Hitt, 1999;


Bonardi et al., 2005). Following this logic, we argue that the firms will acquire better financial ratios when implementing lobbying as an informational CPA strategy.

To implement lobbying, firms always straightforwardly liaise with the policymakers to exchange a lot of information. With this exclusive information, companies can dynamically adjust their business strategies to influence and benefit from the process of policy formulation of related industries at the same time. For example, the informational strategy might benefit firms in the tax remission or

reduction or help them to create a beneficial political environment that could increase the CFP in the end (Brown, 2016; Richter et al., 2009). Hence, we will examine the following hypothesis:

H1b: There is a positive relationship between CPA and CFP when firms execute information strategy (lobbying).

Concerning the impact on financial outcomes by another individual CPA activity, namely financial strategy, researchers usually look at the PAC contributions.

A similar result as presented for lobbying appears when looking at the PAC

contributions and their relationship to CFP: both positive and negative relationships exist. (Hillman et al., 1999; Cao et al., 2018). PAC contributions are a different way to influence policymakers, which focus on elections and aim to create a strong bond with decision-makers. Although it does not mean firms can succeed immediately through this tactic, it can forge a superior business environment with financial performance benefits once the policymaker gets elected (Brown, 2016).


We believe PAC contributions can positively influence the CFP in terms of sustainable development. Firms use PAC contributions as a direct investment to an elected decision-maker who at least will bring business convenience and

immeasurable resources to the enterprise during his term of office. Certainly, PAC contributions are not only about money investment. They also require a proactive mindset that demands managers to adapt to the dynamic political environment for the enterprises’ future development (McWilliams et al., 2002).

Additionally, in the imitable and substitutable perspectives of RBV, PAC contributions might construct competitive advantages. For instance, the firms that find the exclusive backers to promote legislation will drive to gain better profits by

acquiring specific political capital (Baron, 1995; Hillman & Hitt, 1999; McWilliams et al., 2002). Therefore, we argue that financial strategy has a positive impact on CFP, and we establish the following hypothesis:

H1c: There is a positive relationship between CPA and CFP when firms execute financial strategy (PAC contributions).

3.2 The Moderating Role of CSR on CPA and CFP

To further understand the connection between CPA and CFP, we apply the stakeholder theory to complement the RBV view and consider CSR as the moderator on the CPA-CFP relationship. Stakeholder theory argues that firms have broader social responsibilities than only fulfilling their obligations under the law. CSR interprets this core concept of stakeholder theory correctly that firms may promote a


particular social interest above the scope of the company’s interests and legal requirements (Siegel, 2001).

CSR, as another core non-market strategy, has a similar attribute with CPA, which builds competitive advantages through various resources, but CSR faces a broader range of stakeholders than CPA. Referring to Liedong et al. (2015), CSR and CPA have a reciprocal association that can construct trust between firms and

stakeholders, which are not limited to internal or external but include social and political stakeholders. In return, these firms achieve policy benefits and profitability.

CSR provides new opportunities and competitiveness for companies implementing or wanting to implement CPA because CSR’s social attributes can enhance the

company’s positive image. A good corporate image established by CSR activities can make new policies and decisions of politicians more acceptable for the public. That is why we argue that CSR activities have positive interactions with the CPA-CFP relationship.

3.2.1 External and Internal CSR moderating aggregated CPA-CFP

In this study, we first use the standard classification of CSR activities: internal versus external CSR (Orlitzky et al., 2003; Tang et al., 2012) to test the moderation effect of CSR on the relationship between CPA-CFP. As discussed in the previous chapter, based on RBV, internal and external CSR alignment in resources should be preliminary to a firm’s strategy determination (Ginder and Kwon, 2019).

Nevertheless, it is still notable that external CSR activities carry more credibility via satisfying external stakeholders’ expectations than internal CSR, which is in line with


stakeholder theory. Such a trust of external stakeholders will impact both the social and political environment, influencing the firm’s decision on entire CPA strategies (Wood & Jones, 1995; Wang & Qian, 2011).

We deem external CSR can help to mitigate specific criticisms by enhancing the sociopolitical legitimacy. It offers more opportunities for firms to acquire political allies, in return to improve the effectiveness of CPA (Liedong et al., 2015; Mellahi et al., 2016; Wang & Qian, 2011). According to RBV, the reputation as a critical intangible asset will help the company to obtain an inimitable competitive advantage in the execution of the company’s CPA strategies, for both informational strategy and financial incentives (Barney, 1991).

As a result, when considering the hypothesis of the relationship between aggregated CPA and CFP, we argue that external CSR has more influence on this relation than internal CSR. Brammer and Millington’s research (2008) propose a similar argument that the external CSR with the ability to enlarge the firm’s

reputation will enhance CPA’s efficiency. Thus, we build the following hypothesis:

H2a: External CSR has a stronger positive moderating effect than internal CSR on the relationship between aggregated CPA and CFP.

3.2.2 External and Internal CSR moderating individual CPA-CFP

As discussed in the previous chapter, different aspects of CSR could impact the relationship between CFP and the aggregated CPA strategy, which might benefit the complementary effect from the combination of different individual CPA


strategies. This part will compare the moderation effect of external and internal CSR on the relation of each CPA strategy with CFP.

The main target of a CPA information strategy is to construct trust and legitimacy which is also what firms look for as the results of CSR strategies,

especially when looking at the external CSR which attends to external stakeholders’

expectations and generates competitive advantages by increasing their reputation (Hond et al., 2014; Baron, 1995). Although internal CSR also affects the promotion of business legitimacy, it focuses on internal participants and more links to inner

company culture. Moreover, external CSR endorses the firms with support from an outsider that brings more chances for firms to maintain a good relationship with the government (Liedong et al., 2015; Mellahi et al., 2016). Therefore, we suppose that external CSR has a firmer influence than internal CSR on information strategy and CFP.

Regarding the financial strategy, through PAC contributions, external CSR might also have a more positive influence than internal CSR. PAC contributions help firms gain support from public policies and aims at the general business its political environment. External CSR has a bigger effect than internal CSR because the satisfied external stakeholders will facilitate a better business environment that is more

advantageous for the maintenance of government relations and the orientation of public opinion. On the other side, internal CSR that fulfils internal stakeholders’

expectations would not impact the external political environment that much (Wang &

Qian, 2011; Perrini et al., 2011). Thus, we argue that external CSR moderates the


relationship between financial CPA strategy and CFP more strongly than internal CSR.

We hypothesize the following:

H2b: External CSR has a stronger positive moderation effect than internal CSR on the relationship between informational CPA and CFP.

H2c: External CSR has a stronger positive moderation effect than internal CSR on the relationship between financial CPA and CFP.

3.2.3 CSR in different industry types moderating CPA-CFP

We base our study of internal and external CSR as moderators on the endogenous nature of CSR. However, to investigate CSR’s moderating role more comprehensively, we need to consider the externality, a company’s industry

background. Business activities differ between particular industry segments, like B2B and B2C, where the main difference is the level of visibility to the end customers (Bowen, 2000; Hoejmose et al., 2012). By fulfilling the demands of end customers, firms can easily retain social legitimacy and form reputations (Miles, 1986). In the light of CPA, the social bonds established by enterprises in the B2C industry with the end customers will also benefit the relationship between enterprises and the

government, because political agencies are parts of the social environment (Puck et al., 2013).

On the other hand, regarding the business nature of B2C firms, they have to face more scrutiny from the public than B2B companies, which forces B2C firms to


involve more CSR activities to increase their reputation consequently (Hoejmose et al., 2012). Meanwhile, with such social scrutiny, B2C business confronts rising exposure risk when those firms execute the CPA strategy with the government and that may cause the fluctuation of CFP (Puck et al., 2013; Milyo et al., 2000).

Reasonably, B2C firms are eager to employ CSR strategies to deal with the uncertainty of social pressure, which will bring a relatively looser political

environment to the B2C firms themselves. For example, the higher level of visibility in the B2C industry always requires firms to engage in more CSR activities to shape the social and political environment and increase CPA’s effectiveness (Hoejmose et al., 2012). Thus, we come up with the argument that CSR in the B2C industry can help to improve the relationship between aggregated CPA and CFP more than in the B2B sector, leading to the next hypothesis:

H2d: CSR in the B2C industry has a stronger positive moderation effect than CSR in the B2B industry on the relationship between aggregated CPA and CFP.

Following our research structure, we analyze the individual CPA strategy separately to compare CSR’s moderation effect in the B2C sector versus the B2B industry sectors. Firstly, firms exchange information regarding specific public

regulations with the government directly when firms employ an information strategy.

In contrast, the policymakers must not only consider the impact of published policies on businesses and the economy but also the impact of these policies on the public (Hillman & Hitt, 1999). In a public aspect, firms in the B2C industry are more


cautious and prone to participate in CSR activity than B2B firms because of the external critics. Such CSR practices in the B2C sector usually lead to a better reputation, brand recognition, and more external constraints, making CSR in B2B firms not salient (Bowen, 2000; González‐Benito & González‐Benito, 2006;

Hoejmose et al., 2012). B2C firms with a CSR strategy to earn end customers' trust will help them build relational ties with policymakers, allowing companies to gain better financial performance from favourable policies in return. Therefore, we argue that CSR can influence the informational CPA strategy (lobbying) and CFP

relationship stronger more in the B2C industry than in the B2B industry.

In the case of financial strategy, namely the PAC contribution, firms focus on financial resources to gain political access with beneficial regulations and business context. These financial incentives mostly work for campaigns that need to win the general public’s support and votes, but visibility is an incisive condition (Hillman &

Hitt, 1999; Hoejmose et al., 2012). CSR in the B2C sector, compared to the B2B sector, has the same end customer groups and higher visibility. Due to the high exposure attribute, firms engaged in CSR activities in the B2C industry are more efficient in building relations and trust with the general public (McWilliams & Siegel, 2001). With the credence, firms might successfully obtain the PAC contributions' benefits to operating the business in a profitable direction. Thus, we argue that the moderation effect on the financial CPA strategy and CFP would be stronger for B2C firms than B2B when they employ CSR.

Overall, we establish the following hypotheses:


H2e: CSR in the B2C industry has a stronger positive moderation effect than CSR in the B2B industry on the relationship between informational CPA and CFP.

H2f: CSR in the B2C industry has a stronger positive moderation effect than CSR in the B2B industry on the relationship between financial CPA and CFP.

3.3 Conceptual Model

Figure 1 illustrates all the composed hypotheses in this paper and the

relationship between CPA and CFP, along with moderator effects on this relation of separate dimensional CSR.

Figure 1. Conceptual Model of the Moderating Role of CSR on the relationship between CPA and CFP


4. Data and Method

The following chapter portrays the data and method of this study and offers an

overview of the utilized variables. We conduct an exploratory format and quantitative database research.

4.1 Data Collection and Sample

We utilize the data from 584 firms of Fortune 500 list between 2010-2016 by leaving out the cases lacking either CSR or CPA data. This exhaustive list consists of the greatest privately and publicly held firms in the US throughout distinct industries and sectors. Companies are in annual revenue ranking

(http://fortune.com/fortune500/). This research extracts data on CPA from the

OpenSecrets database, including public and private firms’ lobbying expenditures and PAC contributions (Schuler, Rehbein & Cramer, 2002; Hillman and Hitt, 1999). As for the CSR data, we retrieve data from the MSCI ESG database composing KLD social rating data (McWilliams & Siegel, 2001; Hoejmose et al., 2012). Additionally, this paper utilizes data on CFP from the Datastream dataset and categorizes the industry type using a SIC code.

4.2 Variables

4.2.1 Dependent Variables: CFP

This study evaluates the CFP as a dependent variable by adopting the widely utilized accounting-based and market-based measures return on investments (ROI) and return on assets (ROA) (Orlitzky et al., 2003). The ROI represents the ratio between net income and the investment capital in the same annual period that


illustrates an investment's efficiency. ROA stands for the firm’s assets’ profitability, calculated with the formula: ROA= Net Income / average total assets.

4.2.2 Independent Variables: CPA

According to Hillman and Hitt’s study (1999), information strategy and financial incentives are CPA domains. Therefore, following their research, we focus on two representative elements, lobbying expenditure and PAC contributions, to measure the execution of information and financial strategies, respectively. To assess the aggregated effect of CPA on CFP, we apply the sum of lobbying expenditure and PAC contributions as accumulative CPA data.

4.2.3 Moderating Variables: CSR

This paper employs CSR as a moderator variable on the relationship between CPA and CFP. We use the KLD database to measure the firm’s CSR strategy and categorize CSR into seven dimensions: corporate governance, employee relations, product, community, environment, diversity, and human rights (Mattingly & Berman, 2006). This research follows previous studies to group the factors mentioned earlier into internal and external CSR activities. Corporate governance, employee, diversity, and product-related activities fall under the internal CSR category, while community, environment, and human rights compose the externally CSR actions (Orlitzky et al., 2003; Tang et al., 2012). In terms of internal CSR, this study will not include

diversity, corporate governance, or product-related activates because they lack scores.

Besides, we take the environment and community as the measurements for external


CSR since there are insufficient human rights scores in the dataset. By calculating the subtraction of an average number of strengths and concerns, we can compare the moderating effect of internal and external CSR activities on the relationship between CPA and CFP. Industry type

This research considers CSR activities in different industry types as another moderator on the effect of the CPA-CFP nexus. Firstly, following the previous

research, we group up external CSR and internal CSR as aggregated CSR (Orlitzky et al., 2003; Luffarelli et al., 2019). Then, we divide industry types into B2B and B2C, replicating the classification by Hoejmose et al. (2012) and Puck et al. (2013). We allocate a corresponding standard industrial classification (henceforth, SIC) code for each firm to define the firm's sector and create a binary variable by coding B2B as “0”

and B2C as “1”.

4.2.4 Control Variables

It is necessary to control for alternative explanations in the assessment of firm performance. This study acquires firm size, R&D intensity, and industry regulation as control variables to conduct the analysis accurately. Prior scholars widely use these proposed variables in their research to test the relationship between CPA and CFP (Hillman & Hitt, 1999; Hadani & Coombes, 2015; Schuler et al., 2002).

Firm size is a crucial determinant of a firm’s performance, including the number of assets, revenues, and employees. It is the control variable for both CPA and CSR strategies. (Hadani & Coombes, 2015; Brammer & Millington, 2008;


Hillman & Hitt, 1999). Accordingly, we measure the firm size using the variable of a firm’s total assets.

R&D intensity is a determining element of environmental policies affected by a firm’s innovation process (Lioui & Sharma, 2012; Hersch et al., 2008). To control the variation proceeding from R&D rather than from the employing of CPA or CSR, we follow previous research to take R&D intensity as a firm-level control variable and measure it by R&D expenses concerning the total assets.

Industry regulation is an essential factor since firms in different industries may face various levels of regulations. Some of the regulations conform to social demands to enforce a firm’s CSR activities, while some regulations might promote or constrain the firm’s CPA strategy (Dechezlepretre and Sato, 2017; Hadani & Schuler, 2013;

Hond et al., 2014). In our study, we take industry regulation as a dummy variable and code non-regulated industry as “0” and the regulated industry as “1”.

4.3 Methodology

The present research adopts a quantitative research approach and takes the averages data of all variables through 2010 and 2016. To re-examine the relationship between CPA and CFP and analyze how CSR (external vs. internal or in different industry types) moderates the relationship, we tested the hypotheses using hierarchical multiple linear regression analyses using SPSS and moderation analyses via


Before the regression analyses, we screen and transform the data by creating boxplots and histograms to eliminate outliers. We apply the log10 function for two


dependent variables (ROA and ROI) and three independent variables (aggregated CPA, lobbying expenditures, and PAC contributions) to improve the expected distributions of all the variables (Field, 2013).

4.3.1 Model equation

By conducting quantitative research by running SPSS regression analyses, we can examine the aforementioned hypothesized relationships among the variables. The following statistical model works for each dependent variable:

YROA/ ROI = β0 + β1X1 + β2X2 + β3X3 + β4X1X4 + β5X2X4 + β6X3X4 + β7X1X5X6

+ β8X2X5X6 + β9X3X5X6 + β10X7 + β11X8 + β12X9 + ɛ

In this presented equation, Y functions as the dependent variable: ROA and ROI, to measure the CFP. β0 is the intercept, meaning the constant value of Y when all the other variables are zero. X1 represents the first independent variable,

aggregated CPA, while β1 represents its direct effect on CFP. X2 and β2 indicate lobbying expenditure (information strategy) and the effect on CFP, respectively. In terms of CPA’s financial strategy, X3 determines the PAC contributions directly on CFP as β3. X4 represents CSR (internal or external) as one of our moderators, and X5 X6 indicates another moderator, which is industry type (B2B or B2C) and aggregated CSR. β4 denotes the interaction effect between CSR and aggregated CPA, while β5 and β6 represent interactions between CSR and lobbying expenditures, CSR, and PAC contributions individually. β7, β8, and β9 specifies the moderation effect of industry type (X5) and aggregated CSR (X6) on the effect of aggregated CPA, lobbying expenditures, and PAC contributions on CFP, separately. There are X7, X8, and X9 to


perform the three control variables of firm size, R&D intensity, and industry

regulation, while β10, β11, and β12 show their effects. Finally, ɛ stands for the residual error of each testing model.

Table 1 displays the entire model including all the relationships mentioned above. Model 1 tests only the effect of control variables (firm size, R&D intensity, and industry regulation) on ROA. Model 2 includes model 1 but adds aggregated CPA as of the first independent variable. Model 3 and Model 4 replace the aggregated CPA in Model 2 with other independent variables, lobbying expenditures and PAC

contributions, respectively. In Model 5, 6, 7, and 8, we switch to the dependent variable ROI and follow the same process as the first four models. Starting from Model 9, we combine the moderators. Model 9, 10, and 11 demonstrate the moderation effect of internal CSR and external CSR on the relationship severally between ROA and aggregated CPA, lobbying expenditures, and PAC contributions.

At the same time, we replace the dependent variable with ROI in Model 12, 13, and 14. In Model 15 through Model 20, we adopt a similar structure as Model 9 to 14 but apply the dummy variable of industry type and aggregated CSR as moderators.

Table 1: Summary of Regression and Moderation Models


5. Analysis and Results

The following chapter portrays the statistical analyses and the results of the

regression. As mentioned in the last section, we check the normality of the dataset by performing log 10 transformation of specific variables and creating histograms and boxplots. Moreover, before starting the regression, we follow the Cronbach’s Alpha test for the reliability statistics and the Pearson’s Correlations test, as well as the variance inflation factors (VIF) for the correlations and multicollinearity. Finally, we operate the multiple regression and moderation analyses with the processed data using SPSS and PROCESS.

5.1 Descriptive Statistics

Table 2 depicts the descriptive statistics of all the variables in this research. As performed in the table, we transform three independent variables (aggregated CPA, lobbying expenditures, and PAC contributions) with the log10 function. We interpret the original figures on each logged variable as raising 10 to the power of the shown data. The average ROA is 0.047, which indicates that the firms make a positive profit of 4.7% on average. The mean ROI is 0.083 showing general firms’ return on

investment of 8.3%.

In terms of independent variables, the firms’ average contribution along with these years in total CPA activities is $276,057.79 (10(5.441)) and vary between

$8,511.38 (10(3.930)) and $4,786,300.92 (10(6.680)). The individual types of CPA strategy: lobbying expenditure and PAC contribution, have an average amount of

$701,455.30 (10(5.846)) and $64,416.93(10(4.809)), respectively. The highest lobbying


expenditure is $21,379,620.90 (10(7.330)) which is much higher than the highest PAC contribution $1,621,810.10 (10(6.210)). Therefore, during the researched years, Fortune 500 firms spent the most money on lobbying while different companies have distinct CPA strategies.

The moderators are internal CSR, external CSR, and the dummy variable of industry type. Both internal and external CSR have positive average amounts of 0.085 and 0.157, while the standard deviations are 0.156 and 0.197, separately. It means that the strengths are more potent than the concerns for both internal and external CSR.

The other moderation variables aggregated CSR and industry type: aggregated CSR has a positive mean of 0.123 in the range from -0.267 and 0.562; industry type is a dichotomous variable with “0” representing B2B firms and “1” reflecting B2C firms.

The scores reveal that 41% of the companies operate in B2C industries, and the rest, 59%, are B2B activities. Hence, the industry type variable shows a moderately equal distribution in our study sample.

The control variables are firm size, R&D intensity, and industry regulation.

The table shows that 32% of the firms in the dataset operate in a regulated industry and 68% in a non-regulated industry.


5.2 Correlations and Multicollinearity

We employ a Pearson’s correlation test to identify the possible correlations among the variables. The test has a scale from -1 to +1 when the score is higher than 0.70; we suspect the existence of multicollinearity between these variables (Field, 2013). Table 3 displays an overview of the correlations.

As we can see from the table, most variables have a low to moderate

correlation. However, ROA and ROI indicate a significant positive correlation (r = 0.895; P = 0.01) that is not a surprise because they are both dependent variables and measure the same factor, CFP. We can also ignore these two variables’ correlation since we segregate ROA and ROI in different models.

We expect a significant positive correlation between aggregated CPA and each individual CPA strategy because we aggregate the total CPA from the sum of the individual CPA strategies. This indeed shows from the analysis: aggregated CPA and lobbying expenditure (r = 0.923; P = 0.01), aggregated CPA, and PAC contribution (r

= 0.898; P = 0.01). Lobbying expenditure moderately correlates with PAC

contribution (r = 0.660; P = 0.01) due to their similar non-market strategy. There is same expectation on external CSR, internal CSR, and aggregated CSR which have the summation relationship, for instance, aggregated CSR and external CSR (r = 0.860; P

= 0.01), aggregated CSR and internal CSR (r = 0.760; P = 0.01).

Furthermore, the firm size (in assets) is moderately correlated to all the three CPA variables: aggregated CPA (r = 0.587; P = 0.01), lobbying expenditure (r =


0.576; P = 0.01), and PAC contribution (r = 0.501; P = 0.01). We may conclude that companies presumably pay more on CPA if they have larger assets.

To further test the multicollinearity, we introduce a VIF test, which includes tolerance scores to show the linear correlation among variables. Multicollinearity does not exist when tolerance levels are above 0.2, and VIF scores are above 1 but under 10 (Field, 2013). Table 4 and Table 5 measure the multicollinearity between

dependent variable ROA and ROI with other variables. SPSS excludes aggregated CPA and aggregated CSR because they are severally the sum of the individual CPA variables and external and internal CSR variables. The tables exhibit all the tolerance levels higher than 0.2 and VIF scores within the standard range 1 to 10, which

indicates that we do not have multicollinearity in our sample.


5.3 Regression and Moderation Analyses

In this part, we analyze the hypothesized relations as structured in the

conceptual model by running multiple regression analyses with SPSS and PROCESS.

The multiple regression analyses present R2 and the adjusted R2, which indicate the variation in the dependent variable affected by the independent variables (Field, 2013). The analyses also provide the standardized Beta values (β-value), which describe the relations between the dependent variable and predictors. Besides, we consider the β-value significant when the P-value is lower than 0.1, which means the chance of a relationship between the variables is higher than 90% (Field, 2013).


Lastly, we include F-value to compare the model with and without predictors to check the fit of our models (Field, 2013).

5.3.1 Direct Relationship: CPA – ROA

Table 5 presents the regression analyses for the direct relationship between CPA and CFP, measured by ROA. First, we only include the dependent variable ROA and three control variables in Model 1. After that, we add the independent variables -- Aggregated CPA, Lobbying expenditure, and PAC contributions -- in Model 2,3 and 4, respectively.

The first model tells us that the control variables can explain 8.1% of the variance in the dependent variable ROA significantly with the R2 of 0.081. There is a significant negative relationship between Firm Size and ROA (β = -0.008, P < 0.05), that is to say, an increase in firm size leads to a decrease of ROA. On the contrary, R&D intensity shows a significant positive effect on the ROA (β = 0.617, P < 0.01).

However, this model displays no indication of a significant relationship between industry regulation and ROA.

In Model 2, we include an independent variable, Aggregated CPA. The result suggests an increased adjusted R2 of 0.106 and a significant positive CPA-CFP relationship (β = 0.019, P < 0.01), which means aggregated CPA improves the model fit. Besides, the more investment in aggregated CPA, the better performance in ROA representing CFP. We have hypothesized the positive impact of aggregated CPA on CFP in previous chapters. Hence, in the ROA perspective, we can accept our first hypothesis.


Model 3 and Model 4 illustrate significant positive relationships between ROA and both CPA strategies, namely Lobbying expenditure (β = 0.009, P < 0.01) and PAC contributions (β = 0.016, P < 0.01). The R2 value of these two models is 0.095 and 0.114, which indicates the models consider 9.5% and 11.4% of the variance as significant, while adjusted R2 in each model shows an improvement of fit comparing to Model 1. Therefore, in terms of ROA, we can accept the hypotheses H1b and H1c, which assert a positive relationship between informational CPA strategy (lobbying) and CFP and financial CPA strategy (PAC contributions) and CFP.

5.3.2 Direct Relationship: CPA – ROI

In Model 5-8, we keep the same process as last section but switch the dependent variable to ROI. Model 5 includes only control variables that R&D intensity has significant positive impact on CFP (β = 1.063, P < 0.01), whereas there


is no significant relation between firm size and CFP (β = -0.006, P > 0.1), neither between industry regulation and CFP (β = 0.004, P > 0.1).

In Model 6, we include aggregated CPA in the regression analysis as an independent variable. This model suggests 11.4% variance of the dependent variable at 0.01 significant level (R2 = 0.114, P < 0.01). The adjusted R2 of 0.104 presents the aggregated CPA as a new predictor that improves the model fit. The impact of aggregated CPA on ROI is a significant positive result (β = 0.043, P < 0.01), which indicates that firms spend more on CPA, achieve higher ROI. Combining the result of Model 1, We can conclude a significant positive relationship between aggregated CPA and CFP that our hypothesis 1a is accepted.

In Model 7 and Model 8, we replace the independent variable with an individual CPA strategy. Model 7 shows a significant positive effect of lobbying expenditure on ROI (β = 0.022, P < 0.01) and Model 8 reveals the similar result on the PAC contributions-ROI relation (β = 0.151, P < 0.01). It signifies that the

informational CPA strategy and financial CPA strategy positively correlate with CFP when measuring ROI. Thus, judging from the ROA regression analyses in the last chapter, we can accept our hypotheses H1b and H1c that each CPA strategy positively affects CFP.



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