Regulatory Balancing Acts: Lobbying and Medical Device Approval

Lobbying is one of the primary nonmarket strategies firms use to shape regulatory outcomes, yet it is often treated as either an informational input that helps regulators make better decisions or a distortionary influence that undermines bureaucratic judgment. We develop a reputation-based theory of how regulators interpret lobbying under uncertainty. Because agencies are evaluated for both acting too quickly and acting too slowly, regulators use discretion over decision time to manage reputational risk. From this perspective, lobbying matters less as persuasion and more as sustained engagement that affects regulators’ confidence that foreseeable risks have been identified and addressed. We argue that the effects of lobbying depend on firm-level reputational cues that influence how regulators interpret lobbying activity, ultimately affecting the speed at which agencies grant regulatory approval. Using a novel dataset of FDA medical device approvals from 2002 to 2021, we find that lobbying is associated with faster approval on average. However, following product recalls this effect can reverse, suggesting that regulators treat interaction as misplaced confidence and increase scrutiny to reduce exposure to decisions that may become reputationally costly. By contrast, innovation reputation signals strengthen the approval-accelerating effect of lobbying by making timely approval more defensible to external audiences. Our theory suggests that the success of lobbying depends on how regulators interpret it in light of firm reputational cues, providing a reputation-based explanation for prior mixed findings on lobbying effectiveness.