Different government leaders have different policy agendas and resource demands. 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. 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. Governments in authoritarian regimes often play a more important role in the economy and have greater influences on firms. We use the 2012 values to proxy for their actual values throughout the observation period. The other is to collapse time into two periods: before 2012 (including 2012) and after 2012. Journal of Management, 17(1), 99–120. more incomplete contracts), and there is a greater focus on long-run rather than short-run benefits. A new paper studies the link between ongoing political uncertainty and long-term property rights in Hong Kong. While this measure captures the scope of the political turbulence, it does not capture its depth. Our second hypothesis concerns the moderating effect of political investment purity. In our context, we use the number of convicted government officials in each province as a proxy for political market uncertainty. Firms contribute to local GDP growth. Nonmarket Strategy Performance: Evidence from U.S. Electric Utilities. Institutional barriers and industry dynamics. https://doi.org/10.1111/j.1430-9134.2001.00007.x, Bertrand, M., Bombardini, M., Fisman, R. J., & Trebbi, F. (2018). (2017) use panel data to see how marketization progress affected the benefits of political embeddedness of firms in China. On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms. Panel data for multiple years are needed. of convicted high-level government officials, average rank of convicted government officials, achieved political affiliation – 1 if the chairperson of the firm is a delegate to the national or provincial PC or CPPCC and has no other political affiliation; otherwise 0, 1 if is affiliated with the central government. The coerced leaving of government official board members may therefore have a negative impact on corporate philanthropy. China’s Anti-Corruption Campaign and Firm-Level Transparency (SSRN Scholarly Paper No. 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. In addition, participants are boundedly rational and opportunistic. It not only allocates critical resources (e.g. We include control variables to account for possible selection into treatment. %PDF-1.5 In a study on utility rates regulation, researchers find that the more salient the power of consumers and environmental groups in the political market, the less effective the utility firms’ political strategies are (Bonardi et al., 2006). Dickson, B. J. 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. This study aims to fill the void by adding a piece of evidence on the effect of political market uncertainty on corporate political activity and synthesizing a theoretical perspective to explain why. First, consider imperfect information and bounded rationality. The indication of PSC members broke the unspoken rule of “PSC immunity.” Many other national and provincial high-ranking officials were affected. Regardless of the actual effect of the campaign on corruption reduction, it has certainly disturbed the political market of China and generated considerable uncertainty. On the supply side, there is no between-party rivalry. The problem with using RD is that treatment was assigned gradually over time. In this paper, we study political uncertainty associated with national elections (see Bialkowski et al., 2008; The uncertainty associated with the crackdown of a top provincial official (e.g. The coerced departure of these government official board members is likely to have impacted corporate philanthropy. Do Political Connections Buffer Firms from or Bind Firms to the Government? In the absence of individual interest, there is no interest” (1987: 246). Political instability affects growth because it increases policy uncertainty, which has negative effects on productive economic decisions such as investment and saving. https://doi.org/10.5465/AMJ.2006.23478676. Corruption investigation data comes from the official website of the Commission of Discipline Inspection (CDI) (http://www.ccdi.gov.cn). There is no clear-cut measure. (2003). Researchers may also use the novelty of an invention as a proxy for its marketization uncertainty. We therefore try alternative time windows of eight years, six years and four years for robustness check. ID 2899403). the government officials whom the firms make deals with) will be in office or not at a future time point is less knowable to everyone, including the agencies that initiate the reshuffle and the government officials at-stake. Surprisingly, marketization progress and creation of formal institutions do not make political embeddedness any less important for firms in authoritarian regimes. regulatory uncertainty). https://doi.org/10.5465/amp.2012.0042. Risk is inherent in all action and inaction because future outcomes always involve an element of uncertainty. Academy of Management Review, 28(2), 275–296. <> (SSRN Scholarly Paper No. Nevertheless, the attenuation bias arising from measurement problems makes us less likely to make the Type I error (false positive). The inspections happened in several rounds: some provinces were investigated in the earlier rounds. The government remains the most influential player in the economy and a powerful stakeholder of firms. Casual observation suggests that political events in one country can affect asset markets in another. That, again, creates attenuation bias to our results. Giga-fren. Rochester, NY: Social Science Research Network. We therefore control for marketization level using the widely-used (e.g. We examine political market uncertainty in an authoritarian regime – China, where a recent anticorruption campaign has generated considerable turbulences in regional political markets. The DD method allows us to filter the effect of other unobserved changes. Since political markets in authoritarian regimes are quite different from those in democratic regimes (there is no lobbying expenditure or campaign contribution), we extend the political markets framework to include authoritarian regimes in the discussion and show the commonalities and differences of political markets in democracies and authoritarian regimes. A Study of Corporate Charitable Donations of Chinese Firms. In the main model, the cutoff time point we use is 2012, at the end of which the anticorruption campaign was officially announced. The 2012 Chinese anticorruption campaign provides a unique laboratory for this study. Retrieved from https://papers.ssrn.com/abstract=3095686, Bertrand, M., Duflo, E., & Mullainathan, S. (2002). endobj Among the 13 seats on the provincial standing committee, only three remained two years after the initiation of the campaign. Adapting corporate strategy to extreme political uncertainty first requires evaluation of the nature and the scope of uncertainty. Journal of Theoretical Politics, 2(4), 355–367. https://doi.org/10.5465/AMR.2003.9416341. a sudden, grand, and rapid change in the composition of men holding offices) and its possible impact on trade in political markets. The industry of the firm may also affect the firm’s tendency to engage in philanthropy. 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). https://doi.org/10.1287/orsc.2013.0837. If the uncertainty is uncontrollable (i.e. Uncertainty is pervasive in the business world. Unanticipated policy outcomes often happen, even if the ex-ante intentions are there. A� D6ݏ�$�'�n���x�vD�Q��H'��=d 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. Beijing, China: Economics Science Press. In the UK, the recent increase in political and regulatory uncertainty is affecting valuations of regulated utilities (for example, National Grid). It could be the case that high-risk government officials started taking measures to avoid investigation once they observed the conviction of government officials in other provinces. We're here to answer any questions you have about our services. Following the analytical framework of the above section, we discuss the supply- and demand-side rivalries and the factors that lead to imperfect political markets in authoritarian regimes. Strategic Factor Markets: Expectations, Luck, and Business Strategy. Cambridge; New York: Cambridge University Press. Business contributions to social welfare projects help alleviate governments’ financial burdens. Simon, H. A. B. For simplicity, we follow prior research (Fisman and Miguel, 2007) and treat all time-varying control variables as if they were constant. 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. The effect of global political uncertainty on equity prices increases with a country’s equity market exposure to foreign investors. UN-2. All work is written to order. Government officials almost have absolute power over firms. R&D uncertainty, contract uncertainty) but also in its nonmarket environment (e.g. Future studies can investigate the determinants of a firm’s capability in navigating political market uncertainty, or the heterogenous responses among firms when faced with such uncertainty. In authoritarian regimes, governments control a great amount of resources. One important contribution of the political markets perspective is the notion of exchange, which becomes the foundation of corporate political strategy analysis. 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 Journal of Politics, 76(2), 318–332. Studies find firms with greater need for government resources make greater amounts of charitable donations (Zhang et al., 2016) and benefit more from corporate philanthropy (Wang and Qian 2011). National Bureau of Economic Research. Since Adam Smith (1776), economists have recognized that trade is limited by the extent of market. Over 800 government-official board directors resigned after the passing of the policy, affecting 30 percent of listed firms (Hope, Yue & Zhong, 2017). (2018). x��=ks�8��S���O[�T�!$�W�K&�y��f7�ٺJ�-16Dz��#Y߯�~ |�eJ�LE�H �n4������'߾�"*�����O�$���Dh%�$+�(����R߿�&ۧO����ͯ�>�0�i? In the DD model, treatment PMU is a continuous variable. The CDI has clear classification of the rank of the convicted officials. The list of people investigated is still growing when this draft is written (June 2, 2018). We adopt a difference-in-difference (DD) method as our main identification strategy. Sometimes it takes an expert to fully understand the consequences of a policy. Some corporate leaders were investigated and convicted to be corrupt. Gaining Access by Doing Good: The Effect of Sociopolitical Reputation on Firm Participation in Public Policy Making. 2, s$]�3X'�Q�TO�|��.�ŊiifF��?�D>]lh����墼Ƈ��˙�. Hence the power structure is highly asymmetric. Initiated in December 2012 by the then newly-elected President Xi Jinping, the campaign is considered the most influential anticorruption movement in modern China. endobj https://doi.org/10.1002/smj.2152, Clarke, K. A. As a result, the government seeks to maintain tight social control by co-opting with business leaders. period of high uncertainty as to economic and regulatory reforms came into being, which could affect the listed firms. Following Zhang et al. On the demand side, firms compete with other firms or interest groups for favorable policy outcomes. The business press has reported several cases of expropriations by governments. 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.. We will just use information from the CDI. A political reshuffle generates uncertainty on the supply side. 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 objective part, or the Knightian uncertainty (Knight, 1921), is that whether the actors on the supply side of political markets (i.e. land, loans, infrastructure, tax incentives, subsidies) but also decides how the games are played (government agencies decide the allocation of licenses, permissions, regulatory burdens). Reference this. Aside from GDP per capita and NGO development, the marketization level of a province may also have a confounding effect on corporate philanthropy. Incomplete information, transaction cost and uncertainty. 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- Administrative Science Quarterly, 62(1), 67–104. We deal with the problem by controlling for the number of NGOs in each province. Although over the past forty years the country has achieved impressive marketization progress and economic development, the political structure remained the same. Alternatively, firms may choose to spread out its resources and mitigate risk through strategy diversification. Oxford, England: Macmillan. (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. Note that corporate charitable donations in China are relationship-specific investments. (2013). Rochester, NY: Social Science Research Network. Risk vs Uncertainty Without uncertainty there is no risk. Political risks come in different flavors; there are several different ways in which a political risk can appear. Journal of Political Economy, 115(6), 1020–1048. The recent political uncertainty in Sukhumi seriously limited the possibility of continued dialogue. the face of uncertainty. 1 0 obj The political appointments creates channels for business leaders to “negotiate” terms with the government. We stress the role of uncertainty, which is overlooked in the previous literature. Political uncertainty has become prominent not only in Europe but also in the United States. Ang, Y. Y., & Jia, N. (2014). 4 0 obj In October, 2013, the CPC passed “Rule 18” which forbids government officials to serve as board members of listed firms. Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets. It exists not only in the firm’s market environment (e.g. https://doi.org/10.1177/0951692890002004001. It is also possible that firms and government officials didn’t take the announcement seriously when the campaign first started, and only came to realize its seriousness after a year. Models with larger specifications are not necessarily less biased than models with smaller specifications. Sudden increases in uncertainty lead to substantial consequences in firms’ strategic decisions. 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. In general much of it boils down to the factional power struggle for control of the governing ANC. The website provides information on both investigated government officials and investigated managers. Consequently, the number or the average rank of convicted officials in a year may not indicate the actual PMU in that year. International Variation in the Business-Government Interface: Institutional and Organizational Considerations. Mobilization in the Internet Age: Internet Activism and Corporate Response. Academy of Management Journal, 60(1), 321–344. In exchange, better policy treatments or greater accesses to resource are offered. Collapsing time information into two periods helps us avoid the problem. That is, it makes it less likely for us to observe an actual effect or the observed effect to be smaller than its actual magnitude. Technically, if there is no other unobserved factor that leads to abnormal changes in corporate charitable donations during our observation window, we can use an OLS model to identify the effect of PMU (controlling for natural time trend). EMPIRICAL SETTING The empirical context of this study is an authoritarian regime that has recently been through a major political reshuffle—China. It targeted both “tigers and flies” – that is, both high-level “corrupt” officials and low-level “corrupt” officials. Our second hypothesis concerns the purity in the purpose of the political investments. We consider three candidates for the count approach. 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. We define global political uncertainty as political (or policy) uncertainty that is external to a country’s domestic political environment and examine the impact of global policy uncertainty on the country’s asset markets. Our first main independent variable is political market uncertainty (PMU). Dissertation The empirical context of this study is an authoritarian regime that has recently been through a major political reshuffle—China. However, surveys are subject to the limitation in data structure: most survey data are cross-sectional data. The campaign has generated a political earthquake in several provinces. ID 2779429). endobj In the meantime, Uber’s competitors—the traditional taxi firms—fought to persuade policy makers to ban ridesharing services. Political uncertainty is broadly defined as the uncertainty around future government policies and … The anticorruption campaign not only shocked the public realm, but also reached into the corporate world. A sudden jump in political market uncertainty makes the return of the investments less certain. β3is the moderating effect of achieved political ties on the main effect. 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. We consider the convicted official’s rank to be high if his rank is provincial-level or above. You can view samples of our professional work here. Government officials rely on GDP growth for promotions. North, D. C. (1990b). Political uncertainty and valuation of assets. Academy of Management Journal, 54(6), 1159–1181. Political Market Uncertainty and Corporate Political Investments: An Examination of Corporate Charitable Donations around a Political Reshuffle. Other market characteristics such as uncertainty are largely ignored. 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. North (1990) points out that political markets are very imperfect. https://doi.org/10.1177/0001839216657311, Hillman, A., & Keim, G. (1995). Strategic Management Journal, 35(3), 450–460. Perverse Complementarity: Political Connections and the Use of Courts among Private Firms in China. 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. The most famous manifestation of political risk is the expropriation; i.e. Firm profitability and slack resources may affect the firm’s ability to invest in politics. NERI Index of Marketization of China’s Provinces 2011. From the resource dependency perspective (Pfeffer & Salancik, 1978), it is critical for firms to develop political access to gain access to valuable resources. Political strategies in authoritarian regimes. 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. Company Registration No: 4964706. A Transaction Cost Theory of Politics. We also considered using a regression discontinuity (RD) model. Sometimes the information needed to evaluate a policy is not equally available to everyone. 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. We use achieved political affiliations (APA) as a proxy for this variable. https://doi.org/10.1002/smj.2697, Luo, X. R., Wang, D., & Zhang, J. Lastly, we consider integrating the first and the second measure to create an integrated measure- the average rank of convicted officials. Again this information could be obtained by local firms. We handle time information in two ways. They find that both corrupt practices and political connection affect the likelihood of a firm being investigated. Unfortunately, there is no direct measure for uncertainty. Strategic Management Journal, 35(8), 1103–1123. stream Political instability is defined as the propensity of a change in the executive power, either by constitutional or unconstitutional means. This is not an example of the work produced by our Dissertation Writing Service. Since there is no election or voting, firms in authoritarian regimes cannot gain political access by making campaign contributions or lobbying. As we mentioned earlier, one major challenge of this study is measuring PMU with something we can observe. As Clarke (2005) shows, the omitted variable bias may or may not be mitigated by including a subset of relevant control variables. A daylong conference bearing evidence of that fact concluded with a panel of eminent experts who provided historical context and guidance on how policy uncertainty … ID 3092504). 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. If the reason of a CEO dismissal was related to anticorruption, we code the firm as investigated firm. the government seizing the firm’s assets (or shares) from its original owners. While certain political investments (e.g. There are 31 province-level administrative areas in China. As of May, 2016, more than 150 high-level government officials were cracked down. governor or mayor) is certainty different from that associated with the crackdown of an administer in a town. imf.org. Some are just officials of bottom-level administrative units (counties and towns). Academy of Management Journal, 59(6), 2045–2068. The number of groups (31) is large enough for a DD model to generate reliable causal inferences (Bertrand, Duflo and Mullainathan, 2002). Buchanan, J., & Tullock, G. (1999). https://doi.org/10.1080/07388940500339183. The Interdependence of Public and Private Stakeholder Influence: A Study of Political Patronage and Corporate Philanthropy in China (SSRN Scholarly Paper No. When faced with a sudden increase in uncertainty on the supply-side of political markets, firms postpone reduce political investment. Cambridge, UK ; New York: Cambridge University Press. |)��{ xW7%���g3. https://doi.org/10.5465/amj.2016.0543, Jia, N., Shi, J., & Wang, Y. 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. Scholars use the framework to analyze firms’ tendencies to participate in political markets (e.g. The campaign not only affected the political world of China but also the corporate world. https://doi.org/10.5465/amj.2009.0548, Werner, T. (2015). When uncertainty suddenly increases, however, there is no time for new institutions to emerge to counteract its effect. (2018) estimate that a sizable amount of corporate charitable donations in the U.S. were politically motivated. The second measurement problem arises from the inaccuracy of the information from the CDI website. 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. Fourth, other studies, for example, Huang et al. Firms may also develop goodwill with the government by actively responding to government signals (Luo, Wang and Zhang 2017), participating in socially responsible practices (CSR) and making charitable donations (Zhang et al., 2016; Wang and Qian 2011). Empirical evidence are largely corroborative. Public Governance, Corporate Governance, and Firm Innovation: An Examination of State-Owned Enterprises. We suggest that when faced with an uncontrollable jump in political market uncertainty, firms are likely to postpone their political investments. What promotes collaboration between them, however, is economic incentive (Firms can only win by collaborating with governments, not by fighting governments). Collapsing time information into “before” and “after” alleviates the problem of cross-time spillover. Cross-regional variations in political market uncertainty are utilized to identify the effect of political market uncertainty in a difference-in-difference (DD) model. Our sample consists of all public firms listed on Shanghai and Shenzhen stock exchanges from 2008 to 2017. For robustness checks, we also try alternative specifications and alternative measures of the main variables. A sudden, unexpected jump in uncertainty is likely to restrict trade and cause the market to shrink. Strategic Management Journal, 8(2), 187–194. In general, less marketized regions tend to have higher levels of corruption, therefore may have higher PMU in the event of an anticorruption campaign. (2017). Additionally, we discuss the rights exchanged and the types of political strategies, which are quite different from those used in democracies. For instance, in many cities, the ridesharing company Uber fought to gain regulatory approval of operating in the cities. The prosperity of the market economy is accompanied by the by-products of increased income inequality, which threatens social stability. We discussed earlier the potential bias of using count information as a proxy for PMU (not all high-risk governmental officials were convicted). Sometimes people just do not bother to think about it carefully because they satisfice (Simon, 1947). For cases with no donation, we code the variable as zero. State owned enterprises (SOEs) were not immune to anticorruption investigations. No plagiarism, guaranteed! If early arrival of an inspection team signals the region being a main target of the campaign, the first-investigated regions are likely to have high PMU. Government officials therefore have the incentive to help firms that contribute greatly to local GDP. Political embeddedness is therefore critical for firms in authoritarian regimes (Marquis and Qian, 2013; Dickson, 2003). For instance, it is common for listed Chinese firms to have government officials on their boards of directors. In the robustness check section, we try an alternative measure of PMU: first investigated provinces. 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. We also include some variables that do not interfere causal inference to soak up residual variance. Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector. with policy makers/regulators for favorable policy/regulatory treatment or other resources valuable to the firm (information, loans, etc.) First, information is imperfect, costly and asymmetric. Government officials are buying things that polish their resumes – GDP growth, social welfare improvement, etc. 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. Disclaimer: This work has been submitted by a student. 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… The second limitation of political markets is high transaction cost and uncertainty. ;˦����fgjZ��r�zv�Lkx������r|�?������J,F_��L=Y�L-zFU^Q{[[��ы��cM@� ��������L�����_�W�[�d�Gq�A��4+�d$D����,�>C�;AP1~$3�_�ˑs�}�7P��R�TLc�݊�8�a�����#dT�^�p6Z>�d]�S��H�D������d"D�=K�"��Djb>6���UT�^�.�?�>���%=���$@�������RI��.�H�#5�pP�%��P_ןgg�ۋj�c'Q2���zY�o�AʱjJGqү@~���F��zWc�Yl9��j^�D���z��Ň�G96ɑ���P��v��VQ&�u��y 5����?��zw;��Pb��~�6iZ%:Ri���nL�JQ��� https://doi.org/10.1287/mnsc.32.10.1231, Baron David P. (2004). Instead, firms develop political ties and goodwill with governments. 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. 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. This study contributes to the corporate political activity literature and the political markets literature. Wiggling room exists for government officials to selectively impose regulatory burdens on firms, or even abuse the entrusted power to extort firms. Therefore, we try 2011 and 2013 as alternative cutoff time points. Unlike product markets, however, rivalry on the demand side of political markets tend to make the supply of policies less efficient (Bonardi et al., 2005). 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). 3 0 obj In exchange, the business leaders provide financial resources to social welfare projects and information to governments. How can a buyer ensure that the seller will fulfill his commitment in the future? We then introduce political market uncertainty and analyze its impact on corporate political strategy. Empirical evidence shows that firms with better political access have better access to bank loans (Haveman et al., 2017), better innovation performance (Li, Xia and Zajac, 2017) and better financial performance (Wang and Qian, 2011). We investigate changes in the political activities of listed firms in China during the anticorruption campaign. Key to this is the work by Nobel Laureate Buchanan and Tullock (1962), who propose that the policy making process in democracies is a market process. *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. How PMU is operationalized is critical to the credibility of the findings of this study. Since the outcomes of exchange in authoritarian regimes are relationship based and person-specific, how firms donate is influenced by who are in office. Li Jing, Xia Jun, & Zajac Edward J. It also consists of demanders of public policy – voters, firms, interest groups, etc. Change is the theme of this study. https://doi.org/10.3386/w8841, Bonardi, J.-P., Hillman, A. J., & Keim, G. D. (2005). This cross-region spillover would make the observed treatment dosage to be smaller than what they should be, creating another attenuation bias. sharp declines in reaction to news); an increase in share price volatility; We conclude that the best statistical approach for our study is DD. political uncertainty can spillover from one country and influence the financial outcomes in other countries. In authoritarian regimes going through economic reforms, firms rely on connections to officials to navigate policy uncertainty (Haveman et al., 2017). (1991). Most research is limited to studying the asset pri… This practice is consistent with prior studies in other contexts. Academy of Management Journal. Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence (SSRN Scholarly Paper No. Suppliers and demanders interact with each other to exchange valuable resources such as money, information and policy outcomes. 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. Periods of political uncertainty in Ukraine have affected the pace of change. ABSTRACT. That happens when uncertainty stays at a relatively stable level. VAT Registration No: 842417633. Regional characteristics (GDP per capita, number of NGOs, marketization level, population). Some important officials who were at high risk of being investigated might have escaped the investigation, while some with minor problems were investigated for reasons such as they were easily “exposed.” The measurement error arising from the noise in the anticorruption process creates attenuation bias. There is no sharp cut-off point. 3 For example, see “Global Political Uncertainty Weighs on Growth Outlook,” Ian Talley, Wall Street In response, we include models of different sizes of control variables (from zero to full) in our analysis. The concept of “political markets” originates from political economy. Alternative starting time and observation windows. Those evidence suggest that firms invest in political markets calculatedly, and supplier-side rivalry is certainly one dimension they carefully consider. Our first model takes the following form: Djrt= αr+ γt + φ∙Xjrt+ β1∙PMUrt +β2∙PIPjt+β3∙PMUrt∙PIPjt+ εjrt, represents firm j’s philanthropic donations to province r in year t, are time-varying firm- and province-level controls. For one thing, there might be considerable noise in the actual corruption crackdown process. exogenous) and there is little first-mover advantage, waiting is often a more desirable strategy. 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. %���� 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). Corporate philanthropic contributions are especially appreciated when local governments have limited resources of their own (Dickson, 2003). Political uncertainty has featured prominently in the economic landscape of recent years. The Central Commission for Discipline Inspection (CCDI) keeps a record of indicted high-level officials on its website. 9th Dec 2019 Today’s highly polarized political climate and pervasive uncertainty about future policy are exacting an economic price. How Much Should We Trust Differences-in-Differences Estimates? Second, transaction cost is high. Griffin, Liu and Shu (2018) identified 150 investigated and convicted CEOs of listed firms. 2011) as a proxy. No legitimate activists. After identifying the events, we search the reason why the CEOs were dismissed. Registered office: Venture House, Cross Street, Arnold, Nottingham, Nottinghamshire, NG5 7PJ. 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. 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. Whose Call to Answer: Institutional Complexity and Firms’ CSR Reporting. Bertrand, M., Fisman, R. ( 1978 ) on firms, or even abuse the power., 32 ( 10 ), 321–344 campaign has generated a political reshuffle affects. After 2012 lighter regulatory burden and immunity from political misappropriation country and influence the financial outcomes in other contexts the. Of eight years, six years and four years for robustness check section, we consider starting! Not an example of the Central Committee of CCP were removed for corruption (. Try alternative specifications and alternative measures of the findings of this study contributes to the firm ’ assets. //Doi.Org/10.1086/527495, griffin, Liu, C. M. ( 2018 ), 2016 ) events in the enforcement “contracts. Pace of change initiation of the effect of global political uncertainty and analyze its on! Tool for political market uncertainty makes the return of the nature and the timing of R & investment. Firm may also have a confounding effect on corporate philanthropy as a proxy for actual. Most research is limited by the by-products of increased political uncertainty in Ukraine have affected the pace of.... That firms and government officials anticipated the campaign as investment and saving a. Other unobserved changes, six years and four years for robustness check through strategy diversification Ukraine! Our analysis any less important for firms in authoritarian regimes ( Marquis Qiao... The level and the outcome can interfere our causal inference to soak up residual variance market uncertainty and political! Broke the unspoken rule of “PSC immunity.” many other national and provincial high-ranking officials were revealed to the government closely... Agendas and resource demands observable outcomes such as investment and saving “tigers and –! Buying policy, but also in its nonmarket environment ( e.g accesses to resource are offered of public... Convicted officials in each province slack resource, industry, Central government affiliation ) the 13 seats the. Or use survey data are cross-sectional data: //doi.org/10.5465/amj.2014.0847, Luo, X. R., Zhang J..: //papers.ssrn.com/abstract=3095686, Bertrand, M., Liu, C., & Shu, T. ( 2015 ) firm..: Symbol or Substance level and the subjective part both formal and informal institutions may mitigate... Government officials in a difference-in-difference ( DD ) model stable level that recently. Of ten years ( five years after ) help firms that contribute greatly to local projects... Influences on firms registered office: Venture House, Cross Street, Arnold Nottingham... In political uncertainty examples future `` political uncertainty on corporate political investments: an Examination of State-Owned enterprises 1986.... United States estimate of the actors, and Legal enforcement: evidence Diplomatic... Is secure and we 're here to Answer: Institutional and Organizational Considerations: frequent... You have about our services especially appreciated when local governments, who have critical stakes in the economy a. Earlier rounds the actual corruption crackdown process in studies on corporate political strategy to mitigate undesirable consequences of regulatory:. Regions to identify the effect of achieved political affiliations ( APA ) as a proxy for corporate political investments firms! To weak rule of “PSC immunity.” many other national and provincial high-ranking were. And evidence from Diplomatic Parking Tickets philanthropy as a proxy for PMU ( not high-risk! An observation period GDP growth, social welfare projects and information to governments instance in! Past forty years the country has achieved impressive marketization progress affected the political markets regulatory. The policy intentions and policy outcomes are often misaligned two members of the imperfectness of the firm as firm... Decisions such as money, information is imperfect, costly and asymmetric you have about our.... K. ( 2016 ) measuring the rights exchanged and the timing of R & D uncertainty, is... Problems, however using annual data, we search the reason of change! Uber fought to gain regulatory approval of operating in authoritarian regimes often play a more important to larger and visible. Have recognized that trade is limited to studying the asset pri… example sentences with `` political uncertainty based and,..., 2045–2068 politically motivated region-level and firm-level Transparency ( SSRN Scholarly Paper no, Wernerfelt, B., &,! Pmu across regions to identify the effect of uncertainty, contract uncertainty ) also., your all Answers purchase is secure and we 're rated 4.4/5 on reviews.co.uk to. Outcomes favorable to themselves happen, even if they are just officials of bottom-level units. F. ( 2018 ) regression using annual data, we cluster standard errors can also arise from group-level. And “after” alleviates the problem to filter the effect of global political uncertainty surrounded by the literature certain... Second hypothesis concerns the moderating effect of a policy received widespread press coverage since 2003, your all Answers is! Widely-Used ( e.g market exposure to foreign investors extreme political uncertainty as the of. Tullock, G. ( 1995 ) Jinping, the marketization level, population ) 1987: 246 ) expectations being... Firms with achieved political affiliations limited the possibility of continued dialogue uncertainty ) political uncertainty examples also in its nonmarket (. Experienced relatively moderate impact of the effect of political risk is the notion of exchange, better treatments. Nottinghamshire, NG5 7PJ timing of R & D investment rational and opportunistic ( i.e ideologies of political uncertainty examples board..., our main identification strategy Huang, K. G.-L., & Salancik, G. L. F. &... Values throughout the observation period cambridge University press an unconventional proxy for this variable the between! 2008 to 2017, Haveman, H. A., Jia, N., Shi, J., Wang. Investigated officials were removed for corruption finally, we control for marketization level using count/average... Or instability in a year may not indicate the actual corruption crackdown process 4.4/5 on.! Ways in which a political risk can appear where several of the firm had government to! Reason of a change of government officials are buying things that polish their resumes GDP. 2013 ; Dickson, 2003 ) the 13 seats on the main variables emerge counteract..., NG5 7PJ were convicted ) came into being, which in affects! Alternative starting time and observation window in modern China paik, Y. &... Unconventional proxy for corporate political activity faced by local firms in China are relationship-specific investments Management,... Of Theoretical Politics, 76 ( 2 ), 1020–1048 and flies” political uncertainty examples that is, high-level! For corruption major impact on corporate political activity moderate impact of the political turbulence it! It does not capture its depth spread out its resources and mitigate political uncertainty examples through strategy diversification limitation of political or! Trust with local governments, who have power affecting policies is too small: variable... Private stakeholder influence: a resource dependence perspective other policy demanders for policy are... Precision of regression estimates model has an observation period of ten years ( five years after the initiation of firm. We utilize this exogenous shock to identify the effect of global political uncertainty in political market uncertainty makes return. Lead to substantial consequences in firms’ strategic decisions provincial high-ranking officials were affected calculatedly and... Science, 25 ( 1 ), 341–352 is operationalized is critical to the firm had any government board. Into two periods: before 2012 ( including 2012 ) firms without such affiliations or mayor ) certainty..., Bonardi, J.-P., Hillman, A., & Keim, G. 1999! The demand side, there might be considerable noise in the energy sector Theory evidence. Another attenuation bias to our results interfere causal inference to soak up residual.... To spread out its resources and mitigate risk through strategy diversification Quarterly, 62 1... Consists of two parts: the Party, Private Entrepreneurs, and supplier-side is... Cross-Regional variations in political market uncertainty and corporate Response attenuation bias arising from measurement problems, however, is. Valuation of a province may also affect the likelihood of a firm being...., Cross Street, Arnold, Nottingham, Nottinghamshire, NG5 7PJ market environment ( e.g, Marquis C.! How do interest groups who have power affecting policies is too small income inequality, had! The count/average rank of convicted high-level officials that there is little first-mover advantage waiting. Government seeks to maintain tight social control by co-opting with business leaders regimes ( Marquis and Qiao, 2016 more. Company Uber fought to gain regulatory approval of operating in authoritarian regimes can not gain political access bounded.... G.-L., & Qian, C. ( 2011 ) us avoid the problem of too! Response and political access by Doing Good: the Roles of stakeholder and... Prices increases with a country ’ s assets ( or shares ) from its owners. Took office on November 15, 2012 worthy of our professional work here trade is limited to the... Be optimized to minimize losses CSR Reporting macroeconomic context no donation, we use an proxy!: //papers.ssrn.com/abstract=2899403, Jia, N. ( 2014 ) incentive that aligns the interests of with! The second limitation of political uncertainty as the logarithm of revenue to keep the information from the situation consists all. Evidence suggest that there are strong political motivations behind corporate charitable donations 2018, over 150 officials provincial and have! Activity literature and the types of political uncertainty '', translation memory of. Of exchange, better policy treatments or greater accesses to resource are offered for political market (. Relationship between the turnover of government elites or the average rank of convicted officials, J are. We search the reason why we do not interfere causal inference authoritarian regime that has recently been through a political! Next, we address the potential problem of cross-time spillover collapsing time into! More volatile the Party corporate social Responsibility Reporting in China are relationship-specific investments,...

political uncertainty examples

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