Determinants and Impact of Private Politics: An Empirical Analysis

Abstract

This paper studies the links between private politics, environmental performance of firms and regulatory activity by the government. Following the terminology coined by Baron (2001), "private politics" refers to the individual or collective actions initiated by public interest and activist groups to further their objectives without relying on the law or regulation. In this paper, we focus on the determinants and effects of two such private political actions, boycotts and proxy contests. We have unique data on boycotts for the time period 1988-95 and on proxy votes for the time period 1988-2000. We find that the size of a firm is an important predictor of the fact if a firm will be chosen as a target of an activist campaign. We find MIXED support for Baron's (2006) theory that activist campaigns will focus on "soft targets" (progressive firms). Our preliminary findings show that private politics does spur the firms to adopt voluntary environmental systems. Specifically, we find that the boycotts increase the probability of adoption of an environmental management system by 27-33 percent.Political Economy,

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This paper was published in Research Papers in Economics.

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