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This paper aims to help executives understand how to interact with government in today’s chaotic political environment.

This paper is based upon voluminous research analyzing a unique data set downloaded from a number of sources, including the financial reports of public companies and the contribution reports filed by political action committees and candidates for Congress.

This study found that political decision-making is constrained by a set of institutions the authors call the political landscape. This framework includes three factors that businesses looking to influence government and the elected officials themselves must consider: the politicians’ ideology, the political trends of their constituency and their existing relationships. While these factors constrain the ability of politicians and business advocates to successfully pursue certain policy positions, businesses may be able to influence these factors through effective political activism, and in so doing, they may be able to push key government decision-makers to alter their positions.

This research will help executives understand how government operates in this new era of uncertainty. Being able to read the political landscape will enable business leaders to anticipate and perhaps even mitigate governmental threats to their business.

This research updates the market theory of politics which has received limited empirical support. It is especially valuable in the wake of Supreme Court’s decisions that have increased the potential for business to impact politics.

The chapter examines whether the lowering of dividend taxes as part of the US Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) resulted in an increase in dividend payouts at the expense of research and development (R&D) spending. Using 1,206 US firm-years data, we find that R&D investments responded negatively to higher levels of dividend payout in the post-JGTRRA of 2003 tax regime compared with the pre-regime. We also find that R&D intensity and financial constraint moderate this negative relation. That is, this relation only holds for firms in low R&D-intensity industries and firms facing high levels of financial constraint. From a tax policy perspective, even though the tax cut on dividend receipts has the benefit of lowering the cost of equity capital, the benefit appears to have come at the expense of R&D investment.