Organizational slack, entrepreneurial orientation, and corporate political activity: From the behavioral theory of the firm

The study addresses why and how firms engage in corporate political activity (CPA), noting increased CPA investments and the need to understand internal antecedents beyond industry and political environment factors. Prior work focuses on firm-level resources (e.g., ownership, size) and external contexts, but shows inconsistent effects and overlooks micro-level managerial mechanisms and willingness. Drawing on the behavioral theory of the firm, the authors argue that CPA engagement depends on both ability (resources) and willingness (managerial orientation). Organizational slack is a key internal resource but its effect is debated and often treated as uni-dimensional. The authors differentiate financial versus operational slack due to differences in flexibility and scarcity and propose that these have heterogeneous effects on CPA. Entrepreneurial orientation (EO), conceptualized as entrepreneurial behavior (innovativeness, proactiveness) and managerial attitude toward risk, captures willingness and may mediate between slack and CPA. The research proposes and tests a model linking slack (financial and operational), EO (behavior and risk attitude), and CPA to unpack the mechanism by which internal resources and managerial orientations drive CPA, thereby extending behavioral theory to the CPA domain.

Theory foundation and hypotheses: From a behavioral theory perspective, firms’ CPA decisions are made under bounded rationality and filtered by structures, experiences, and resources. Organizational slack (excess resources) facilitates search for political solutions and buffers threats/opportunities. Differentiating slack: Financial slack (liquid, flexible, less scarce) can be rapidly redeployed to support costly political actions; operational slack (unused capacity, embedded resources) is less flexible but provides buffering and interpretive capacity. Hypotheses H1a–H1b predict positive effects of both slack types on CPA, with financial slack stronger. Entrepreneurial orientation (EO): Defined as two dimensions (Anderson et al., 2015): entrepreneurial behavior (innovativeness/proactiveness) and managerial attitude toward risk. Slack resources can enable EO by funding experimentation, shifting attention from firefighting, and providing professional staff/facilities. H2a–H2b predict positive effects of both slack types on entrepreneurial behavior, with financial slack stronger; H2c–H2d predict positive effects on risk attitude, with financial slack stronger. EO and CPA: EO reflects willingness to allocate resources to risky, potentially high-return activities. Entrepreneurial behavior may complement CPA through needs for policy protection and government support for innovation; managerial risk attitude should increase investment in risky CPA. H3a–H3b predict positive effects of entrepreneurial behavior and risk attitude on CPA. Mediation: EO should mediate the slack–CPA relationship, as slack builds capability and EO channels resource allocation toward CPA. H4a–H4b posit mediation by entrepreneurial behavior and by managerial attitude toward risk, respectively.

Design and sample: Cross-sectional survey of 303 firms in mainland China (23 provinces), conducted 2010–2011, a period of heightened government influence following the 2008 stimulus, providing a consistent external context for examining internal mechanisms. Two respondents per firm (606 questionnaires), multiple-informant design to enhance reliability. Sampling: 500 firms randomly selected from directories in each of three regions (A: eastern/coastal; B: middle; C: northwest), totaling 1500 approached. Trained interviewers conducted 1–1.5 h face-to-face interviews after email/phone contact. Responses: 980 from 490 firms; after removing missing data, 606 responses from 303 firms retained (response rate 10.1%). Nonresponse bias tests (size, age, ownership) showed no significant differences (P>0.05). Sample characteristics: Region A 42.9%, B 25.75%, C 31.4%. Ownership: state-owned/controlled 36.3%, private 28.7%, JV 9.9%, FDI 10.9%, other 14.2%. Size: 38.94% <¥5m sales; 29.04% ¥5m–¥5b; 21.12% >¥5b. Respondents: 36.63% middle managers, 9.41% CEOs, 40.26% non-CEO top managers; average tenure 8.75 years in firm, 5.76 years in position. Measures: 7-point Likert scales. CPA adapted from Hillman & Wan (2005) and Wei (2006) (e.g., involvement in government decision-making, lobbying, using associations). Organizational slack split into financial slack (retained earnings sufficiency, discretionary financial pool, bank loan access) and operational slack (excess capacity). EO measured per Anderson et al. (2015)/Wang (2008): entrepreneurial behavior (R&D emphasis, new product lines, major changes) and managerial attitude toward risk (propensity for high-risk projects, bold acts, aggressive posture under uncertainty). Controls: industry life-cycle stage (1–4), industry competitiveness (5-point), market share (log of 3-year average), marketization index (Fan et al., 2003), high-tech industry (dummy), manufacturing (dummy). Validity and reliability: CFA (Amos 17.0) five-factor model fit: χ²=262.648, df=94, P<0.001; NFI=0.910; CFI=0.939; TLI=0.923; RMSEA=0.077; AIC=378.648. Loadings significant; Cronbach’s α for all constructs >0.80; AVE adequate and square roots exceeded inter-construct correlations, supporting convergent and discriminant validity. Analytic approach: OLS hierarchical regressions (SPSS 19.0) to test direct and mediating effects (Baron & Kenny steps). Z-tests to compare coefficient differences (financial vs operational slack). Post hoc mediation and serial mediation tested using PROCESS with 5000 bootstrap samples (90% CIs).

- Direct effects on CPA (Model 2): Financial slack positively predicts CPA (β=0.322, P<0.001). Operational slack positively predicts CPA (β=0.151, P<0.01). Z-test comparing effects supports stronger effect of financial vs operational slack (Z=1.60>1.58), supporting H1a–H1b. - EO to CPA (Model 3): Entrepreneurial behavior does not significantly predict CPA (β=0.071, P>0.10), failing H3a. Managerial attitude toward risk positively predicts CPA (β=0.192, P<0.01), supporting H3b. - Slack to EO: Entrepreneurial behavior: financial slack (β=0.196, P<0.01) and operational slack (β=0.204, P<0.01) both positive (H2a supported); no significant difference between slack types (H2b not supported). Managerial attitude toward risk: financial slack (β=0.233, P<0.01) and operational slack (β=0.239, P<0.01) both positive (H2c supported); no significant difference (H2d not supported). - Mediation (hierarchical models): Entrepreneurial behavior does not mediate the slack–CPA links (H4a not supported). Managerial attitude toward risk partially mediates both financial slack–CPA and operational slack–CPA (H4b supported). - PROCESS results (bootstrapped): Total effects—financial slack→CPA 0.405 (SE=0.065, P<0.001); operational slack→CPA 0.321 (SE=0.065, P<0.001). Direct effects—financial 0.362 (SE=0.070, P<0.001); operational 0.267 (SE=0.070, P<0.001). Indirect effects: via managerial attitude toward risk—financial 0.027 (Boot SE=0.020; LLCI 0.001, ULCI 0.064); operational 0.031 (Boot SE=0.020; LLCI 0.003, ULCI 0.069). Entrepreneurial behavior alone shows no significant indirect path, but exhibits a serial indirect path through managerial attitude: financial→EB→Risk→CPA = 0.013 (Boot SE=0.009; LLCI 0.001, ULCI 0.032); operational→EB→Risk→CPA = 0.016 (Boot SE=0.010; LLCI 0.002, ULCI 0.035). - Summary of hypotheses (Table 6): Supported—H1a, H1b, H2a, H2c, H3b, H4b. Not supported—H2b, H2d, H3a, H4a.

Findings demonstrate that internal resource endowments and managerial orientations jointly shape CPA engagement, aligning with the behavioral theory of the firm’s ability–willingness logic. Financial slack, due to its flexibility and redeployability, more strongly enables CPA than operational slack, resolving prior inconsistencies that treated slack as uni-dimensional. Both slack types cultivate EO, but only the managerial attitude toward risk translates into greater CPA, indicating that willingness rooted in risk tolerance is the operative micro-mechanism linking resources to political strategic action. Entrepreneurial behavior appears oriented toward market innovations rather than nonmarket action, explaining its null direct effect on CPA. Post hoc analyses reveal that entrepreneurial behavior can influence CPA indirectly by fostering a risk-taking managerial posture. Overall, the study extends CPA antecedent research by unpacking the internal decision process—slack enabling EO, and risk attitude channeling resources to CPA—thereby enriching behavioral theory within the nonmarket strategy context. Managerially, firms should build both operational slack (as a buffer and information-processing base) and financial slack (for flexible deployment), while cultivating risk-tolerant managerial attitudes to convert resources into effective CPA.

The study advances understanding of CPA engagement by distinguishing financial and operational slack and by integrating entrepreneurial orientation as a mediating mechanism. Empirically, financial and operational slack both increase CPA, with financial slack exerting a stronger effect. Both slack types raise EO, yet only managerial attitude toward risk promotes CPA and mediates the slack–CPA linkage; entrepreneurial behavior does not directly mediate but can operate via risk attitude. These findings clarify the ability–willingness pathway in CPA and extend the behavioral theory of the firm to nonmarket strategy. Future research should test these mechanisms longitudinally and across diverse institutional contexts, and incorporate objective behavioral measures to validate and generalize the model.

- Cross-sectional, self-reported survey data limit causal inference and may introduce common method and respondent biases. Longitudinal designs and objective measures (e.g., archival CPA spending, board/CEO traits) are recommended. - Context specificity: Chinese transitional economy during 2010–2011; institutional heterogeneity may constrain generalizability. Comparative, cross-country studies across different institutional environments are needed to assess external validity. - Potential measurement constraints: subjective scales for slack and CPA tailored to the Chinese context (e.g., exclusion of campaign contributions) may limit comparability with other settings.