Transaction Hazards Through Ideological Filters: How CEO Political Ideology Influences Vertical Integration Decisions

Why do firms facing similar transaction environments adopt different boundary structures? Transaction cost theory (TCT) predicts governance choices based on transaction hazards, but persistent heterogeneity in vertical integration suggests that such efficiency-based explanations are incomplete. We examine whether CEO political ideology is associated with systematic variation in firm boundary decisions. Drawing on research on political ideology and strategic leadership, we argue that ideological orientations shape how executives evaluate and prioritize governance trade-offs. Using a panel of 1,198 U.S. public firms from 2001 to 2020 and a firm fixed-effects design exploiting CEO successions, we find that firms led by more conservative CEOs exhibit higher levels of vertical integration. This relationship weakens when asset specificity is high and when industries are more concentrated but is not amplified by demand volatility. Our findings suggest that firm boundaries reflect not only transaction conditions but also systematic differences in executive decision-making.