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Political Activism and Market Power

Published online by Cambridge University Press:  14 March 2025

Elia Ferracuti ,
Roni Michaely  and
Laura A. Wellman Open the ORCID record for Laura A. Wellman [Opens in a new window]
Elia Ferracuti
Affiliation:
Duke University Fuqua School of Business elia.ferracuti@duke.edu
Roni Michaely
Affiliation:
Hong Kong University HKU Business School ronim@hku.hk
Laura A. Wellman*
Affiliation:
University of Oregon Lundquist College of Business
*
wellman@uoregon.edu (corresponding author)
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Abstract

We document an increase in market power for politically active firms during times of heightened policy uncertainty, when their information and influence advantage is greater. The effect is long-lasting and stronger for large politically active firms. We show that relatively large investments during high uncertainty periods serve as a potential mechanism for gains in market power. Industries populated with politically active firms experience lower business dynamism and import penetration, consistent with active firms leveraging investment timing to restrict competition. Results suggest that political activism is a likely contributing factor to the dominance of large firms over the last two decades.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 60 , Issue 6 , September 2025 , pp. 2879 - 2920
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We appreciate helpful comments from Anup Agrawal, Ashish Arora, Nittai Bergman, Alberta Di Giuli, Gustavo Grullon, Joan Farre-Mensa, Morten Hviid, Yelena Larkin, David Matsa, Andrea Patacconi, Chase Potter, Thomas Ruchti, Alex Wagner, and Avi Wohl; conference participants at the Annual Corporate Finance Meeting at Bristol. The annual SFI conference, the Conference on Financial Economics and Accounting, the FARS midyear meeting, the Hebrew University Summer Finance and Accounting Conference in Jerusalem, the Multinational Finance Society Association Meeting, the UIBE Finance and Accounting conference, and seminar participants at Duke University, ESCP Paris, Norwich Business School, Penn State University, Singapore Management University, Tel Aviv University, University of Cyprus, University of Manchester, and University of Southern California.

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