Striking a Political Balance? Political Polarization and Firm Innovation

Affective polarization, a division marked by animosity between members of opposing political groups, has dramatically increased, particularly in the United States. This paper examines the extent to which affective polarization may spill over into organizations and influence strategic outcomes—specifically, corporate innovation. I theorize how politically balanced organizations, that is, those that lack a prevailing political ideology and have workforces that are more evenly divided between opposing political stances, are less innovative due to heightened animosity and reduced collaboration. Furthermore, I propose that the negative relationship between political balance and innovation intensifies at higher levels of partisan animosity in society and political engagement among organizational members. Conversely, I theorize that the relationship weakens when a firm is led by a CEO who does not overtly signal a clear political leaning. I test and find support for these predictions using a novel donation-based index of organizational political balance for 744 publicly traded U.S. companies from 2002 to 2015. This paper highlights the role of political balance as a potential conduit of intrafirm rivalry that hinders innovation. The findings advance our understanding of the mechanisms and conditions through which political polarization may influence organizations and their outcomes.