The economic incentive that aligns the interests of firms and governments is GDP growth (Haveman et al., 2017). Political risks come in different flavors; there are several different ways in which a political risk can appear. https://doi.org/10.1002/smj.2152, Clarke, K. A. Conflict Management and Peace Science, 22(4), 341–352. On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms. Strategic Management Journal, 35(8), 1103–1123. On the supply side, when there is greater rivalry among politicians, politicians are more likely to trade with interest groups for valuable resources to boost their electoral perspective. Li Jing, Xia Jun, & Zajac Edward J. To test our prediction, we use an unconventional proxy for corporate political investment: corporate charitable donations. How Much Should We Trust Differences-in-Differences Estimates? On the supply side, there is no between-party rivalry. 9th Dec 2019 Alternatively, firms may choose to spread out its resources and mitigate risk through strategy diversification. They find a “perverse complementary” relationship between political connectedness and the use of courts: better connected firms are more likely to use courts, everything else equal. The second measurement problem arises from the inaccuracy of the information from the CDI website. 3 For example, see “Global Political Uncertainty Weighs on Growth Outlook,” Ian Talley, Wall Street (2016), we code this variable as one if the chairman of the firm serves as a delegate to the national- or provincial-level People’s Congress (PC) or the national- or provincial-level Chinese People’s Political Consultative Conference (CPPCC) and has no other government affiliations. Using the count/average rank of convicted officials as proxies for political market uncertainty may risk significant measurement problems, however. Contrary to the intuition that marketization reduces the importance of ties and make transactions increasingly contractual (Peng, 2003), they find that as marketization level increase, the effect of political ties becomes even greater. Whose Call to Answer: Institutional Complexity and Firms’ CSR Reporting. Policy makers are appointed rather than elected. In addition, due to weak rule of law, policy making and regulatory execution in authoritarian regimes can sometimes be quite arbitrary. the government seizing the firm’s assets (or shares) from its original owners. Corporate Philanthropy and Corporate Financial Performance: The Roles of Stakeholder Response and Political Access. North, D. C. (1990b). Administrative Science Quarterly, 62(1), 67–104. Journal of Theoretical Politics, 2(4), 355–367. Hillman and Keim, 1995; Bonardi, Hillman and Keim, 2005; Kingsley, Vanden Bough and Bonardi, 2012) and the effectiveness of firms’ political strategies (Bonardi et al., 2006; Holburn and Vanden Bergh, 2013). The government remains the most influential player in the economy and a powerful stakeholder of firms. Others have modeled the effects of political uncertainty in a macroeconomic context. While this measure captures the scope of the political turbulence, it does not capture its depth. Although uncertainty has always been an element of political markets, actors are able to gradually develop informal and formal institutions to deal with it (North 1990). Problems with standard errors can also arise from assigning group-level treatment to individual observations (Moulton, 1986). https://doi.org/10.1287/mnsc.32.10.1231, Baron David P. (2004). Researchers may also use the novelty of an invention as a proxy for its marketization uncertainty. The empirical context of this study is an authoritarian regime that has recently been through a major political reshuffle—China. Several top national leaders were targeted, including former military leaders Xu Caihou and Guo Boxiong and former Politburo Standing Committee (PSC) member Zhou Yongkang. Regardless of the nature of the campaign, it has certainty generated an exogenous shock to regional political markets, with some regions being impacted more and some regions being impacted less. This study contributes to the corporate political activity literature and the political markets literature. The treatments in this study are (1) being “assigned” high/low PMU and (2) had achieved political affiliations. Using the quasi-natural experiment created by the U.S. gubernatorial elections over the 1976 to 2013 period as a source of plausibly exogenous increase in political uncertainty, we show that heightened political uncer- In the DD model, treatment PMU is a continuous variable. VAT Registration No: 842417633. For example, the ratings firm Standard & Poor's cited political uncertainty among the chief reasons behind its unprecedented downgrade of the U.S. Treasury debt in August 2011. For instance, Bertrand et al. Models with larger specifications are not necessarily less biased than models with smaller specifications. A political reshuffle generates uncertainty on the supply side. Most research is limited to studying the asset pri… Initiated in December 2012 by the then newly-elected President Xi Jinping, the campaign is considered the most influential anticorruption movement in modern China. Additionally, we discuss the rights exchanged and the types of political strategies, which are quite different from those used in democracies. Retrieved from https://papers.ssrn.com/abstract=2899403, Jia, N., Huang, K. G.-L., & Zhang, C. M. (2018). The anticorruption campaign not only shocked the public realm, but also reached into the corporate world. The indication of PSC members broke the unspoken rule of “PSC immunity.” Many other national and provincial high-ranking officials were affected. Ang, Y. Y., & Jia, N. (2014). Panel data for multiple years are needed. If the coefficient on PMU turned out to be significant, we could be optimistic that the actual effect would be even greater or more significant. Simon, H. A. This discussion leads to our main hypotheses: H1. The second limitation of political markets is high transaction cost and uncertainty. A sudden, unexpected jump in uncertainty is likely to restrict trade and cause the market to shrink. Summary of Variables, Measures and Data Sources. (2017) use panel data to see how marketization progress affected the benefits of political embeddedness of firms in China. 2017) or use survey data to study more refined questions. In general much of it boils down to the factional power struggle for control of the governing ANC. The politically-motivated proportion of charitable donations of firms with achieved political affiliations is likely to be higher than firms without such affiliations. For example, in the biotechnology R&D context, researchers often use the success rate of new drug invention in the drug category as a proxy for R&D uncertainty. https://doi.org/10.1287/orsc.2016.1084. We obtain most of the firm-level data from China Stock Market and Accounting Research (CSMAR) database, the Chinese Research Data Services (CNRDS) database, company annual reports, and company websites. https://doi.org/10.1080/07388940500339183. For example, the Federal Open Market Committee (2009) and the International Monetary Fund (IMF) (2012, 2013) suggest that uncertainty about U.S. and European fiscal, regulatory, and monetary policies contributed to a steep economic decline in 2008–2009 and slow recoveries afterward.1 To investigate the role of policy uncertainty we first develo… governor or mayor) is certainty different from that associated with the crackdown of an administer in a town. In authoritarian regimes, governments control a great amount of resources. Policy uncertainty (also called regime uncertainty) is a class of economic risk where the future path of government policy is uncertain, raising risk premia and leading businesses and individuals to delay spending and investment until this uncertainty has been resolved. Red Capitalists in China: The Party, Private Entrepreneurs, and Prospects for Political Change. stream Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets. land, loans, infrastructure, tax incentives, subsidies) but also decides how the games are played (government agencies decide the allocation of licenses, permissions, regulatory burdens). In addition, participants are boundedly rational and opportunistic. We use the 2012 values to proxy for their actual values throughout the observation period. https://doi.org/10.5465/AMR.2003.9416341. In this paper, we study political uncertainty associated with national elections (see Bialkowski et al., 2008; We measure profitability as return on assets (ROA) and slack resources as free cashflow over total assets (Wang and Qian 2011). Politically-motivated corporate philanthropy is not unique to firms operating in authoritarian regimes. Governments in authoritarian regimes often play a more important role in the economy and have greater influences on firms. Judging from its impacts, the campaign has been the largest organized anticorruption movement in modern China. The standard error would be biased if we treat PMU as if it was randomly assigned to firms within the province. Uncertainty avoidance is the level of stress that an organization, society or culture experiences when faced with uncertainty and ambiguity.This is commonly used to model the character of a nation or organization. It is particularly troubling when the treatment is serially correlated over time (in the worst case, it is “once on, always on”). While certain political investments (e.g. From the resource-based view perspective (Barney, 1986, 1991), uncertainty makes it difficult for firms to form correct expectations about the future value of a strategic resource. As of May 2018, over 150 officials provincial and above have been cracked down. One way is to keep the information of each year. Risk vs Uncertainty Without uncertainty there is no risk. Rivalry on the supply side, therefore, is at most factional fights between groups within the party. In the meantime, Uber’s competitors—the traditional taxi firms—fought to persuade policy makers to ban ridesharing services. The Attractiveness of Political Markets: Implications for Firm Strategy. Political instability is defined as the propensity of a change in the executive power, either by constitutional or unconstitutional means. International Variation in the Business-Government Interface: Institutional and Organizational Considerations. Is the Chinese Corporate Anti-Corruption Campaign Authentic? In December 2012, a massive anticorruption campaign was initiated in China, affecting tens of thousands of government officials in the following years and changing the political landscape of the country dramatically. The campaign was launched soon after President Xi took office on November 15, 2012. Our second hypothesis concerns the moderating effect of political investment purity. The political markets framework is widely in studies on corporate political strategy. Pfeffer, J., & Salancik, G. R. (1978). Rather than being determined by ideologies of government elites or the “public interest,” policy outcomes are driven by competition between interest groups. Haveman et al. Corporate philanthropic contributions are especially appreciated when local governments have limited resources of their own (Dickson, 2003). Rochester, NY: Social Science Research Network. From the resource dependency perspective (Pfeffer & Salancik, 1978), it is critical for firms to develop political access to gain access to valuable resources. The reason why we do not use firm-year as the unit of observation only is that there is likely to be strong cross-time spillover. Besides, firms sometimes voluntarily contribute financial resources to local social projects. edition). There is no sharp cut-off point. Casual observation suggests that political events in one country can affect asset markets in another. We investigate changes in the political activities of listed firms in China during the anticorruption campaign. Much more (tens of thousands) of lower level officials were indicated. We use achieved political affiliations (APA) as a proxy for this variable. Cross-regional variations in political market uncertainty are utilized to identify the effect of political market uncertainty in a difference-in-difference (DD) model. The CDI has clear classification of the rank of the convicted officials. Fourth, other studies, for example, Huang et al. Some are just officials of bottom-level administrative units (counties and towns). Translating the measures into PMU, we indicate PMU with “high,” “moderate” or “low” dummies based on the quantiles (top 25% – high; bottom 25% – low; 25% – 75% – moderate) the values are in. Compared to the investments that are purely aimed to generate political influence, investments that serve multiple purposes are likely to be affected less by sudden changes in conditions of political markets. (2017). Retrieved from https://papers.ssrn.com/abstract=3095686, Bertrand, M., Duflo, E., & Mullainathan, S. (2002). In sum, a political market is in general more attractive to a firm when there is greater rivalry on the supply side and less rivalry on the demand side. Those factors combined explain the market failure of political markets. Those evidence suggest that firms invest in political markets calculatedly, and supplier-side rivalry is certainly one dimension they carefully consider. https://doi.org/10.1177/014920639101700108, Barney, J. Does Economic policy and political uncertainty effect stock market performance and firms’ investment. There are no voters. Nevertheless, less attention has been paid to uncertainty in political markets per se. To calculate average rank, we code the rank of central government officials and the “first-hands” of provincial and municipal government officials as 5, other provincial and municipal government officials as 3, and the rest as 1. In their recent paper, “Elections, Political Polarization, and Economic Uncertainty,” Scott R. Baker, Aniket Baksy, Nicholas Bloom, Steven J. Davis, and Jonathan Rodden find that economic policy uncertainty (EPU) rises around national elections, especially those that are polarized and close. This may come to a head at the party’s elective national conference scheduled for December, at which it is supposed to elect a new leadership including President Jacob Zuma’s successor. (1987). Risk Uncertainty and Profit. https://doi.org/10.5465/amp.2012.0042. For instance, the government requires businesses to conduct socially responsible practices (Marquis and Qian, 2014). Sometimes the information needed to evaluate a policy is not equally available to everyone. Tourists looking to relax will often rule out destinations with any hint of instability. After identifying the events, we search the reason why the CEOs were dismissed. Firms use charitable donations as tool for developing goodwill and trust with local governments, who have critical stakes in the firms’ local operations. The Academy of Management Review, 20(1), 193–214. In October, 2013, the CPC passed “Rule 18” which forbids government officials to serve as board members of listed firms. Other firm characteristics may also affect both the assignment of PMU, achieved political affiliation and the change in corporate philanthropic donations. Strategic Factor Markets: Expectations, Luck, and Business Strategy. Therefore, we introduce a second measure –  number of convicted high-level officials. Consider the effect of a major political reshuffle (i.e. Political embeddedness is therefore critical for firms in authoritarian regimes (Marquis and Qian, 2013; Dickson, 2003). New York: Harper & Row. ID 2899403). The list of people investigated is still growing when this draft is written (June 2, 2018). Scholars use the framework to analyze firms’ tendencies to participate in political markets (e.g. https://doi.org/10.1111/j.1430-9134.2001.00007.x, Bertrand, M., Bombardini, M., Fisman, R. J., & Trebbi, F. (2018). NERI Index of Marketization of China’s Provinces 2011. We suggest that when faced with an uncontrollable jump in political market uncertainty, firms are likely to postpone their political investments. The external control of organizations: a resource dependence perspective. Firms contribute to local GDP growth. 3 0 obj Concerns about policy uncertainty have intensified in the wake of the global financial crisis, serial crises in the Eurozone, and partisan policy disputes in the United States. β3. We handle time information in two ways. A� D6ݏ�$�'�n���x�vD�Q��H'��=d Firms’ political strategies are tailored to suit the specific leaders they try to access. In addition, most ways of making political investments in China are fuzzy and ambiguous. If we actually observe a significant effect, the measurement problem only makes the true effect greater than what we estimated (assume there is no endogeneity problem, which we address with the choice of control variables and estimators). Unfortunately, there is no direct measure for uncertainty. In the United States, much uncertainty surrounded the government bailouts during the finan- ... For example, Baker, Bloom, and Davis (2013) find that this uncertainty, measuredbytheirindex, increasesunemploymentand reducesinvestment. For example, the ratings firm Standard & Poor’s cited political uncertainty among the chief reasons behind its unprecedented downgrade of the U.S. Treasury debt in August It is estimated that over 100 CEOs of SOEs were forced to resign due to corruption investigation. It not only allocates critical resources (e.g. North (1990) points out that political markets are very imperfect. We log-transform the amount of charitable donation for cases with positive donations. Variables that affect both the treatment status and the outcome can interfere our causal inference. Fan, G., Wang, X., & Zhu, H. 2011. That is to say that when outcomes are fully known in advance, decisions can be optimized to minimize losses. The reason behind is information complexity, information cost and bounded rationality. We include region-level and firm-level variables that we suspect to affect both treatment status and outcome. 2, s$]�3X'�Q�TO�|��.�ŊiifF��?�D>]lh����墼Ƈ��˙�. (2018) estimate that a sizable amount of corporate charitable donations in the U.S. were politically motivated. We therefore try alternative time windows of eight years, six years and four years for robustness check. What promotes collaboration between them, however, is economic incentive (Firms can only win by collaborating with governments, not by fighting governments). Our first main independent variable is political market uncertainty (PMU). A total number of nine provincial rank officials were removed for corruption. Both formal and informal institutions may help mitigate the problem, but the problem cannot be entirely avoided. Among the 13 seats on the provincial standing committee, only three remained two years after the initiation of the campaign. Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UKDiss.com. ����z�i��(+C��_� �~�%�P�p�i5yE��.Y_�qs%��#��I6@y��D�"���"��of0��w�%/�ru����c!Ǻ"��W֕E�B|G�(c�Q Their R-squared indicates that corrupt practices and political connections explain similar proportions (14% and 19% respectively) of the variation in the likelihood of a firm being investigated. Wiggling room exists for government officials to selectively impose regulatory burdens on firms, or even abuse the entrusted power to extort firms. Bertrand, Duflo and Mullainathan (2002) point out that incorrect ways of dealing with standard errors in DD models often lead to false positive inferences and overestimations. The first is the total number of convicted government officials. Government official board member. Rodrik (1991) and Pindyck and Solimano (1993) are prominent examples of this literature in which the uncertainty brought about by political factors leads firms to choose lower levels of investment ex-penditures. https://doi.org/10.1017/S0022381613001400, Barney, J. imf.org. endobj Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector. %���� https://doi.org/10.5465/AMJ.2006.23478676. Following Zhang et al. Academy of Management Journal. The problem with using RD is that treatment was assigned gradually over time. Academy of Management Journal, 54(6), 1159–1181. Business contributions to social welfare projects help alleviate governments’ financial burdens. (Buchanan and Tullock 1962; North, 1990). While most of the existing evidence on the connection between political uncertainty and asset Some investigated government official are top national/provincial leaders in the Party. Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence (SSRN Scholarly Paper No. The prosperity of the market economy is accompanied by the by-products of increased income inequality, which threatens social stability. As Clarke (2005) shows, the omitted variable bias may or may not be mitigated by including a subset of relevant control variables. sharp declines in reaction to news); an increase in share price volatility; The industry of the firm may also affect the firm’s tendency to engage in philanthropy. Public Governance, Corporate Governance, and Firm Innovation: An Examination of State-Owned Enterprises. endobj Additionally, our main model has an observation period of ten years (five years before and five years after). The business press has reported several cases of expropriations by governments. One potential problem associated with using variations in PMU across regions to identify the effect is selection bias. As a result, the government seeks to maintain tight social control by co-opting with business leaders. The concept of “political markets” originates from political economy. For example, Pástor and Veronesi develop an equilibrium model of the policy decision of a government, which implies that political uncertainty is positively associated with risk premiums, especially in weaker economies. Management Science, 32(10), 1231–1241. <>     political market uncertainty (PMU). Finally, we address the potential problem of having too many control variables. In the UK, the recent increase in political and regulatory uncertainty is affecting valuations of regulated utilities (for example, National Grid). We also control for population. Note that corporate charitable donations in China are relationship-specific investments. <>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/Annots[ 27 0 R] /MediaBox[ 0 0 595.32 841.92] /Contents 4 0 R/Group<>/Tabs/S>> A Study of Corporate Charitable Donations of Chinese Firms. Next, we consider alternative starting time and observation window. We therefore use early inspection as an alternative measure for PMU and code this alternative measure as “1” if the province was investigated during the first three rounds and “0” otherwise. By usingthe same Research on corporate political strategy has provided rich insights into how firms use political strategy to mitigate undesirable consequences of regulatory uncertainty (e.g. The treatment dosage assigned to a particular province in a specific year may not reflect the actual PMU perceived by firms, because the investigations take time and government officials at risk are likely to start taking measures since the onset of the campaign. ID 2779429). The measure of uncertainty largely depends on the context. To soak up residual variations, we control for central government affiliation, as firms affiliated with the central government might not be affected as much by the local political market as other firms. Consequently, the number or the average rank of convicted officials in a year may not indicate the actual PMU in that year. The Calculus of Consent (Volume 3 ed. Underlying political stability under Pax Britannica seems to be a more likely explanation, however.’ Stock Volatility, Return Jumps and Uncertainty Shocks During the Great Depression “There are a multitude of explanations for the depth and length of the Great Depression, of which uncertainty has been proposed as one possible explanation. We're here to answer any questions you have about our services. We code the variable as “1” if the firm had any government official board members in 2012. How PMU is operationalized is critical to the credibility of the findings of this study. In authoritarian regimes going through economic reforms, firms rely on connections to officials to navigate policy uncertainty (Haveman et al., 2017). https://doi.org/10.1002/smj.2697, Luo, X. R., Wang, D., & Zhang, J. The DD method allows us to filter the effect of other unobserved changes. For cases with no donation, we code the variable as zero. *You can also browse our support articles here >, https://doi.org/10.1017/S0022381613001400, https://doi.org/10.1177/014920639101700108, https://doi.org/10.1111/j.1430-9134.2001.00007.x, https://doi.org/10.5465/AMJ.2006.23478676, https://doi.org/10.1080/07388940500339183, https://doi.org/10.1177/0951692890002004001, log(donations) if donations != 0; otherwise 0, No. Haveman et al., 2017; Bonardi, Holburn and Vanden Bergh, 2006). Firms are not buying policy, but access to resources, information, lighter regulatory burden and immunity from political misappropriation. Firm Resources and Sustained Competitive Advantage. Sometimes people just do not bother to think about it carefully because they satisfice (Simon, 1947). Unanticipated policy outcomes often happen, even if the ex-ante intentions are there. For example, some leaders aspire to reduce poverty, others aspire to reduce environmental pollution. Corruption investigation data comes from the official website of the Commission of Discipline Inspection (CDI) (http://www.ccdi.gov.cn). https://doi.org/10.1002/smj.2096, Hope, O.-K., Yue, H., & Zhong, Q. Despite the many differences between democracies and authoritarian regimes, factors that make political markets in democracies imperfect apply to political markets in authoritarian regimes, too. Political instability affects growth because it increases policy uncertainty, which has negative effects on productive economic decisions such as investment and saving. Firms often compete with other policy demanders for policy outcomes favorable to themselves. Including more control variables in the model may increase or reduce the omitted variable bias. Change is the theme of this study. This problem arises from difficulties in measuring the rights being traded and difficulties in enforcing the exchange of rights. 4 0 obj A number of major uncertainties are currently the key political drivers in South Africa, and they are likely to remain with us for quite some time. Political risk is the risk an investment's returns could suffer as a result of political changes or instability in a country. If the reason of a CEO dismissal was related to anticorruption, we code the firm as investigated firm. To get the standard error right, we cluster them at the province level. According to the political markets framework, political markets consist of suppliers of public policy such as the executive, legislators, regulators and courts. Academy of Management Journal, 49(6), 1209–1228. Political Markets and Regulatory Uncertainty: Insights and Implications for Integrated Strategy. We control for firm size and measure it as the logarithm of revenue. No legitimate activists. Free resources to assist you with your university studies! 2 0 obj Journal of Political Economy, 115(6), 1020–1048. Political strategies in authoritarian regimes. <> The inspections happened in several rounds: some provinces were investigated in the earlier rounds. Intuitively, the greater the number of officials who are affected by the anticorruption campaign, the greater political turbulence the campaign has induced in the province. Third, there is uncertainty in the enforcement of “contracts,” even if they are just relational. Such information may spillover to firms. Although over the past forty years the country has achieved impressive marketization progress and economic development, the political structure remained the same. Rochester, NY: Social Science Research Network. On the demand side, firms compete with other firms or interest groups for favorable policy outcomes. endobj The 2012 Chinese anticorruption campaign provides a unique laboratory for this study. If the uncertainty is uncontrollable (i.e. Rochester, NY: Social Science Research Network. (1986). A new paper studies the link between ongoing political uncertainty and long-term property rights in Hong Kong. Suppliers and demanders interact with each other to exchange valuable resources such as money, information and policy outcomes. Different government leaders have different policy agendas and resource demands. Exchange in political markets are essentially trading for future commitments. Martino Fine Books. First, consider imperfect information and bounded rationality. For example, stock markets around the world rebounded by around 2% on January 2, 2013, following a last-minute deal by the U.S. Congress to prevent tax increases and federal budget cuts.1 Likewise, in the run-up to the 2016 U.S. Presidential election global markets tumbled on news that Donald Trump had closed the gap on Hillary Clinton (Stewart and Rogers 2016). Ang and Jia, 2014). Giga-fren. Our sample consists of all public firms listed on Shanghai and Shenzhen stock exchanges from 2008 to 2017. For instance, in many cities, the ridesharing company Uber fought to gain regulatory approval of operating in the cities. Copyright © 2003 - 2020 - All Answers Ltd is a company registered in England and Wales. Since the outcomes of exchange in authoritarian regimes are relationship based and person-specific, how firms donate is influenced by who are in office. Entrepreneurship, Innovation, and Political Competition: How the Public Sector Helps the Sharing Economy Create Value (SSRN Scholarly Paper No. Dissertation <> In contrast, some provinces experienced relatively moderate impact of the campaign. For robustness checks, we also try alternative specifications and alternative measures of the main variables. We extend our approach to other countries, finding elevated levels of economic policy uncertainty abroad, as well. It is costly to conduct repeated surveys through multiple years to generate panel data. We then introduce political market uncertainty and analyze its impact on corporate political strategy. Table 1. Academy of Management Review, 28(2), 275–296. It is possible that not all of the investigated officials were revealed to the public. That happens when uncertainty stays at a relatively stable level. ID 2925077). Since some studies point out that some CEO investigations are not published on the website, we follow those studies to manually search in CSMAR for CEO dismissal events. Dickson, B. J. Another reason why corporate philanthropy in China is especially political is that almost all charities in China are organized by the government (Zhang et al., 2016). Below we discuss several important characteristics of political markets: supply- and demand-side rivalries, incomplete information, transaction cost and uncertainty. Sometimes it takes an expert to fully understand the consequences of a policy. Now let’s turn to another potential spillover problem: cross-region spillover. Another important firm-level control variable is whether the firm had government officials on the board of directors. It targeted both “tigers and flies” – that is, both high-level “corrupt” officials and low-level “corrupt” officials. Corporate political investments how firms obtain strategic political resources (goodwill, trust, access to valuable resources). The uncertainty associated with the crackdown of a top provincial official (e.g. The other is to collapse time into two periods: before 2012 (including 2012) and after 2012. Political uncertainty is broadly defined as the uncertainty around future government policies and … To export a reference to this article please select a referencing stye below: If you are the original writer of this dissertation and no longer wish to have your work published on the UKDiss.com website then please: Our academic writing and marking services can help you! In exchange, the business leaders provide financial resources to social welfare projects and information to governments. Prior studies find that firms with government officials as board members are more likely to engage in reciprocal exchanges with the government and are more likely to make charitable donations. That, again, creates attenuation bias to our results. The objective part, or the Knightian uncertainty (Knight, 1921), is that whether the actors on the supply side of political markets (i.e. Second, transaction cost is high. … Political Market Uncertainty and Corporate Political Investments: An Examination of Corporate Charitable Donations around a Political Reshuffle. The Interdependence of Public and Private Stakeholder Influence: A Study of Political Patronage and Corporate Philanthropy in China (SSRN Scholarly Paper No. For example, an economic downturn could generate a great deal of political uncertainty. It has been a challenge to study political investments in China, since there is no public information on how much firms spend on corporate political activities. (2018). The campaign has generated a political earthquake in several provinces. One important contribution of the political markets perspective is the notion of exchange, which becomes the foundation of corporate political strategy analysis. For simplicity, we follow prior research (Fisman and Miguel, 2007) and treat all time-varying control variables as if they were constant. We therefore control for marketization level using the widely-used (e.g. 2 Examples include the minutes of the Federal Open Market Committee meeting on 15-16 December 2009, the International Monetary Fund (2012, pages xv-xvi and 49-53, and 2013, pages 70-76), Baker et al., (2012, 2016), and Stock and Watson (2012). https://doi.org/10.5465/amj.2009.0548, Werner, T. (2015). 8841). Journal of Management, 17(1), 99–120. Journal of Econometrics, 32(3), 385–397. In exchange, better policy treatments or greater accesses to resource are offered. Moulton, B. R. (1986). Uncertainty is pervasive in the business world. Consequently, we conjecture that the political market uncertainty level of provinces with a large number of convicted officials is higher than that of provinces with a small number of convicted officials. To avoid the problem, we control for the GDP per capita.     Our main dependent variable is Corporate charitable donations. For one thing, there might be considerable noise in the actual corruption crackdown process. https://doi.org/10.1287/orsc.2013.0837. Strategy is essentially about investing for the future. North, D. C. (1990a). We adopt a difference-in-difference (DD) method as our main identification strategy. Registered office: Venture House, Cross Street, Arnold, Nottingham, Nottinghamshire, NG5 7PJ. All work is written to order. Government officials almost have absolute power over firms. Strategic Management Journal, 39(1), 193–216. Regardless of the actual effect of the campaign on corruption reduction, it has certainly disturbed the political market of China and generated considerable uncertainty. 2011) as a proxy. Academy of Management Journal, 60(1), 321–344. Therefore, we try 2011 and 2013 as alternative cutoff time points. It creates a sudden exogenous shock to the supply side of political markets, enabling us to observe the impacts of increased uncertainty on corporate political investment. https://doi.org/10.5465/amj.2015.0693, Marquis, C., & Qian, C. (2013). Recent evidence (for example, Pastor […] They find that both corrupt practices and political connection affect the likelihood of a firm being investigated. the face of uncertainty. (2003). This leads to our second hypothesis: H2. It finds that properties subject to political uncertainty are sold at a significant discount and that the discount is higher when people’s confidence declines and where residents feel more uncertain of the future. The political ties approach has been well documented by the literature. Perverse Complementarity: Political Connections and the Use of Courts among Private Firms in China. Gaining Access by Doing Good: The Effect of Sociopolitical Reputation on Firm Participation in Public Policy Making. Firms that are not state-owned benefit more from corporate philanthropy (Jia, Shi and Wang, 2018), suggesting that the nature of charitable donations are primarily political investments. Government officials rely on GDP growth for promotions. Political uncertainty has become prominent not only in Europe but also in the United States. They are characterized with costly information, subjective models on the part of the actors, and imperfect enforcement of agreements. How can a buyer ensure that the seller will fulfill his commitment in the future? In general, less marketized regions tend to have higher levels of corruption, therefore may have higher PMU in the event of an anticorruption campaign. We stress the role of uncertainty, which is overlooked in the previous literature. %PDF-1.5 Like how equilibrium market price is determined in the classical supply and demand model, the attractiveness of political markets to a firm is determined by the intensity of rivalries on the supply- and the demand-sides (Hillman and Keim, 1995; Bornardi et al., 2005; Kingsley et al., 2012). Since there is no election or voting, firms in authoritarian regimes cannot gain political access by making campaign contributions or lobbying. (1947). Do Political Connections Buffer Firms from or Bind Firms to the Government? We've received widespread press coverage since 2003, Your All Answers purchase is secure and we're rated 4.4/5 on reviews.co.uk. The purer the purpose of a political investment in serving political purposes, the more affected is the investment by a sudden increase in political market uncertainty. Retrieved from https://papers.ssrn.com/abstract=2779429, Haveman, H. A., Jia, N., Shi, J., & Wang, Y. Mobilization in the Internet Age: Internet Activism and Corporate Response. Sudden increases in uncertainty lead to substantial consequences in firms’ strategic decisions. Competitive strategy under uncertainty. The outcome is the change in corporate charitable donations. The 10-year observation period is relatively long, if the actual influence of the campaign may have attenuated after a few years, or the uncertainty perceived by firms was partially resolved over the first few years. With two leadin… In this study, we analyze the effect of uncertainty in political markets on corporate political activity. It has been widely recognized that political uncertainty plays a signi cant role in asset valuations as well as economic activity (for example,P astor and Veronesi,2013;Baker et al.,2016;Hassan et al., 2019). For instance, Paik, Kang and Seamans (2018) investigate the determinants of Uber being banned in U.S. cities and find that the less political competition (measured by mayor tenure) there is in a city, the greater the likelihood of Uber being banned in the city. There are 31 province-level administrative areas in China. A Transaction Cost Theory of Politics. period of high uncertainty as to economic and regulatory reforms came into being, which could affect the listed firms. lobbying, campaign contributions, ties with officials) serve solely political purposes, other political investments such as CSR and corporate philanthropy often serve multiple purposes and affect multiple stakeholders (Werner, 2015). Paik, Y., Kang, S., & Seamans, R. (2018). First, information is imperfect, costly and asymmetric. The Central Commission for Discipline Inspection (CCDI) keeps a record of indicted high-level officials on its website. Political uncertainty has featured prominently in the economic landscape of recent years. Reference this. Nevertheless, the assumption that no other unobserved factors have affected changes in corporate philanthropic donations during the ten-year observation period can be too strong, given the pace and scope of change in China. The best we can do is to use observable proxies to observe uncertainty indirectly. Organization Science, 25(1), 127–148. (SSRN Scholarly Paper No. with policy makers/regulators for favorable policy/regulatory treatment or other resources valuable to the firm (information, loans, etc.) This, combined with high levels of US investment in Australia, means we are set for a bumpy ride in the lead up to the 2020 US elections, writes Dr Phong Ngo.. In a similar vein, our estimation would be biased if provinces with higher PMU were characterized with underdeveloped philanthropic institutions, which led to less corporate philanthropic donations. The subjective part of the uncertainty, on the other hand, is caused by incomplete information or information asymmetry between the less informed entities and the more informative entities. In a similar vein, researchers find utility firms are more likely to increase their political investment (campaign contributions) when there is greater rivalry between democrats and republicans (Holburn and Vanden Bergh, 2013). Not an example of the nature and the outcome can interfere our causal inference campaign a... Practice is consistent with prior studies in other contexts effects and the timing of &. Influence on firm Participation in public policy – voters, firms are not necessarily less biased than models smaller... Its impacts, the business press has reported several cases of expropriations by governments the of. Of Management Review, 20 ( 1 ), 321–344 ) is certainty different from those in democracies the. 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