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Research Summary We develop a political path dependence model that integrates the network embeddedness perspective and the literature on corporate political strategy to understand how firms adapt their political connections when a...
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Research Summary We develop a political path dependence model that integrates the network embeddedness perspective and the literature on corporate political strategy to understand how firms adapt their political connections when anticorruption efforts lead to the turnover of government officials. We posit that although firms that have close associations with ousted corrupt officials can benefit from both removing existing political connections ("cleaning house") and developing new connections with their successors ("hosting new guests"), political path dependence enables firms to do the former but constrains them from doing the latter. These effects are magnified when firms are highly dependent on the government, and when the ousted corrupt officials have great political power. Evidence from anticorruption campaigns in China between 2012 and 2018 lends support for our theoretical predictions. Managerial Summary It is common for firms to strive to stay connected with government officials. Of interest is, when political power shifts, can firms "update" their connections by severing ties with politicians who fall out of power and building new ones? Our political path dependent model demonstrates that it may not be a symmetric process. After the downfall and replacements of public officials due to corruption indictments, firms that are more closely associated with ousted, corrupt officials will indeed be more motivated and able to remove existing connections. However, the successors of ousted officials will more likely distance themselves from these firms, thereby undermining the firms' abilities to build new connections with them. Empirical evidence from anticorruption campaigns in China between 2012 and 2018 supports our predictions.
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This paper investigates whether corporate political connections and corporate donations to national-level political campaigns are associated with the allocation of government resources. Based on a sample of Taiwanese publicly held...
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This paper investigates whether corporate political connections and corporate donations to national-level political campaigns are associated with the allocation of government resources. Based on a sample of Taiwanese publicly held companies, the findings show that political campaign contributions are associated with successful applications for government innovation subsidies as well as more government innovation subsidies. The findings also show that companies that show their loyalty by only donating to the ruling party’s candidates in campaigns receive higher amounts of government innovation subsidies than other companies. Overall, the findings provide evidence that political connections through political campaign contributions may affect government’s decision for resource allocation.
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Purpose - The purpose of this paper is to ask the following question: is there a link between being politically connected, the quality of governance and the company's ownership structure? Design/methodology/approach - The author t...
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Purpose - The purpose of this paper is to ask the following question: is there a link between being politically connected, the quality of governance and the company's ownership structure? Design/methodology/approach - The author then examined Canadian companies from the S&P/TSX index for the year 2015. Findings - Political connectedness is significantly associated with lower quality of governance in relation to shareholders' rights; ownership concentration is associated with lower quality of governance in relation to the overall governance, board of directors, shareholders' rights and compensation structure indices; ownership structure does not mediate the relationship between political connections and quality of governance; and number of political connections through the executive is associated with less risky governance practices in relation to compensation structure; in other words, when members of the executive are politically connected, the firm adopts better compensation practices. Research limitations/implications - The time limitation is the main weakness of this study and probably the cause of observed mitigated results. Practical implications - The author hope that the results will inform regulators on the need not only to further regulate the business-politics relationship, but also to consider the specific traits of concentrated ownership companies and the most critical aspects of corporate governance in politically connected firms, such as shareholders' rights, particularly those of minority shareholders. For example, an intriguing case to investigate in the Canadian context would be Pierre Karl Peladeau's foray into Quebec politics and the controversy ignited by his political bid in light of his position as majority shareholder (75 percent) in communications giant Quebecor Inc. Social implications - In fact, the results shown that concentrated ownership firms have lower governance quality than non-concentrated ones. Furthermore, in a concentrated ownership context, the minority shareholders' rights could be threatened. In this sense, the results also shown that shareholders' rights seem to be the most critical governance issue for the politically connected Canadian firms. These results are therefore the indication that Canadian financial market regulators must take action about politically connected and concentrated ownership firms in order to further protect minority shareholders' rights. Originality/value - This study makes a double theoretical contribution by enriching the literature on corporate governance and by providing one of the first investigations into the direct and comprehensive relationships between political connections, governance and ownership structure.
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Abstract Corporate political geography influences the value of real options because proximity to political power can trigger greater exposure to uncertainty and/or more growth opportunities. Our empirical tests reveal that althoug...
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Abstract Corporate political geography influences the value of real options because proximity to political power can trigger greater exposure to uncertainty and/or more growth opportunities. Our empirical tests reveal that although areas closely aligned with the president experience a boost in real options’ value relevance, this effect is significant only among the majority of firms that are neither politically connected nor reliant on government contracts. Our findings are consistent with the notion that political connections essentially eliminate policy uncertainty (render real options value‐irrelevant), whereas government dependence additionally inhibits investment in growth opportunities (ability to exploit volatility) from proximity to political power.
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Political tension that causes diplomatic strain rarely escalates into direct violence or war. This paper identifies the economic effects of such non-violent political tension by examining Taiwan's sovereignty debate. Non-violent e...
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Political tension that causes diplomatic strain rarely escalates into direct violence or war. This paper identifies the economic effects of such non-violent political tension by examining Taiwan's sovereignty debate. Non-violent events harming the relationship with mainland China lead to an average daily drop of 200 basis points in Taiwanese stock returns. The impact is more severe on firms openly supporting the Taiwanese pro-independence party. Through a series of tests, we show that this economic penalty is targeted at proindependence firms that are economically exposed to mainland China via either investments or exports. (C) 2017 Elsevier B.V. All rights reserved.
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The objective of the study is to discuss the effects of political influence on investors' perceived risk under the political connected firms. Under the Malaysian political environment, relationship based of economic system which c...
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The objective of the study is to discuss the effects of political influence on investors' perceived risk under the political connected firms. Under the Malaysian political environment, relationship based of economic system which commonly practiced by most of the listed firms would enhance the needs of politician to participate as directors of the firm in order to ensure the firm's survival in competitive industry. The effects of systematic exchange of favours between politician and firms has led to the arguments of political hypotheses in governance literature. As supported under the helping hand effects, empirical evidences have shown a favourable impact on firms accounting value and market based-performance due to the government favours and bailed-out to connected firms. However, the government obligations towards the people in social and political agenda have exacerbated the rent-seeking activities of political directors in realising the objectives. Moreover, due to the increasing number of cases reported involving high political figures in allegations of misallocation of firm's resources and abuse of power in the 1MDB (1Malaysia Development Berhad), manipulation of stock figures and forgery of signatures of board members for a numbers of transactions in FGV (Felda Global Ventures Holdings Berhad), the credibility of politicians to perform his duties as firms' director to maximising the shareholders' wealth is questioned. As a consequence, a negative perception on the government may lead to inefficient capital market thus impair the investors' confidence in future investment.
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We examine whether political connections measured by political contributions influence the choice of terms included in government contracts awarded to firms. We construct an index of four "sweetheart" contract terms and find that ...
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We examine whether political connections measured by political contributions influence the choice of terms included in government contracts awarded to firms. We construct an index of four "sweetheart" contract terms and find that firms making larger political contributions more frequently have these favorable terms included in their contracts. We also find that political contributions have explanatory power for contract design after controlling for lobbying, negotiation power, and the employment of former government employees. These results are robust to alternative model specifications, different estimation techniques, various variable measurements, and adjustments for possible endogeneity.
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This paper studies whether banning corporate contributions suffices to curb firms' efforts to influence politics. We examine Brazil's 2015 campaign finance reform, which banned companies from making political contributions but did...
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This paper studies whether banning corporate contributions suffices to curb firms' efforts to influence politics. We examine Brazil's 2015 campaign finance reform, which banned companies from making political contributions but did not ban political contributions made by individuals. Following the reform, overall contributions decreased significantly. However, this does not mean that influence in politics disappeared. Firms with high prereform contributions responded by increasing individual donations at both the intensive and extensive margins. More critically, individual contributions became more valuable after the reform: postban individual contributions to winning candidates increased firms' valuation substantially, thereby replicating what only corporate donations achieved preban and partially offsetting the reform's intent. Despite this, the reform reduced total contributions, increased shareholder protection by reducing excessive contributions, and leveled political participation among firms. Moreover, the reform increased market valuations for contributing firms. Overall, incomplete campaign finance reform does deliver notable successes but has critical loopholes. All contributions by corporations ... for any political purpose should be forbidden by law; directors should not be permitted to use stockholders' money for such purposes; and, moreover, a prohibition of this kind would be ... an effective method of stopping the evils aimed at in corrupt practices acts. (Theodore Roosevelt, President's Annual Message, 1905, 40 Cong. Rec. 96 [1906]) A ban on direct corporate contributions leaves individual members of corporations free to make their own contributions, and deprives the public of little or no material information. (Federal Election Commission v. Beaumont, 539 U.S. 146, 161 [2003])
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This paper documents stock market responses to the arrest of Shanghai's top leader by the Chinese central government in September 2006. The effects of personal-level and organizational-level connections to the local state are foun...
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This paper documents stock market responses to the arrest of Shanghai's top leader by the Chinese central government in September 2006. The effects of personal-level and organizational-level connections to the local state are found to be negative and insignificant, respectively, on cumulative abnormal returns (CARs). Furthermore, companies having both personal and organizational political ties experienced the most adverse market reaction.
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Many real systems are made of strongly interacting networks, with profound consequences on their dynamics. Here, we consider the case of two interacting social networks and, in the context of a simple model, we address the case of...
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Many real systems are made of strongly interacting networks, with profound consequences on their dynamics. Here, we consider the case of two interacting social networks and, in the context of a simple model, we address the case of political elections. Each network represents a competing party and every agent, on the election day, can choose to be either active in one of the two networks (vote for the corresponding party) or to be inactive in both (not vote). The opinion dynamics during the election campaign is described through a simulated annealing algorithm. We find that for a large region of the parameter space the result of the competition between the two parties allows for the existence of pluralism in the society, where both parties have a finite share of the votes. The central result is that a densely connected social network is key for the final victory of a party. However, small committed minorities can play a crucial role, and even reverse the election outcome.
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