The inspections happened in several rounds: some provinces were investigated in the earlier rounds. more incomplete contracts), and there is a greater focus on long-run rather than short-run benefits. 2017) or use survey data to study more refined questions. <> We develop a new method to measure economic policy uncertainty and test its dynamic relationship with output, investment, and employment. 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. London: Methuen & Co., Ltd. Wang, H., & Qian, C. (2011). Political Markets in Authoritarian Regimes. Cross-regional variations in political market uncertainty are utilized to identify the effect of political market uncertainty in a difference-in-difference (DD) model. https://doi.org/10.1177/0951692890002004001. The recent political uncertainty in Sukhumi seriously limited the possibility of continued dialogue. Researchers may also use the novelty of an invention as a proxy for its marketization uncertainty. As Buchanan notes, “the relevant difference between (economic) markets and politics does not lie in the kinds of values/interests that persons pursue, but in the conditions under which they pursue their various interests. 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. 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). It is possible that not all of the investigated officials were revealed to the public. Summary of Variables, Measures and Data Sources. That, again, creates attenuation bias to our results. ID 2779429). 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. 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. (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. (2005). The Calculus of Consent (Volume 3 ed. Other firm characteristics (size, ROA, slack resource, industry, central government affiliation). To get the standard error right, we cluster them at the province level. 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. (1987). Free resources to assist you with your university studies! The most famous manifestation of political risk is the expropriation; i.e. The campaign was launched soon after President Xi took office on November 15, 2012. Journal of Economics & Management Strategy, 10(1), 7–45. Including more control variables in the model may increase or reduce the omitted variable bias. 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. Judging from its impacts, the campaign has been the largest organized anticorruption movement in modern China. We code the variable as “1” if any of the firm’s top leaders was investigated. New York: Harper & Row. A political reshuffle generates uncertainty on the supply side. (2013). A sudden jump in political market uncertainty makes the return of the investments less certain. We then introduce political market uncertainty and analyze its impact on corporate political strategy. 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. Next, we consider alternative starting time and observation window. Administrative Science Quarterly, 62(1), 67–104. We utilize this exogenous shock to identify the effects of increased political uncertainty on corporate political investments. The other is to collapse time into two periods: before 2012 (including 2012) and after 2012. In the robustness check section, we try an alternative measure of PMU: first investigated provinces. The political appointments creates channels for business leaders to “negotiate” terms with the government. We use achieved political affiliations (APA) as a proxy for this variable. Academy of Management Journal. Rivalry on the supply side, therefore, is at most factional fights between groups within the party. We consider the convicted official’s rank to be high if his rank is provincial-level or above. 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). It is estimated that over 100 CEOs of SOEs were forced to resign due to corruption investigation. Others have modeled the effects of political uncertainty in a macroeconomic context. Ang and Jia, 2014). 9th Dec 2019 Several top national leaders were targeted, including former military leaders Xu Caihou and Guo Boxiong and former Politburo Standing Committee (PSC) member Zhou Yongkang. https://doi.org/10.2307/20159126, Bonardi, J.-P., Holburn, G. L. F., & Bergh, R. G. V. (2006). Academy of Management Journal, 54(6), 1159–1181. We also considered using a regression discontinuity (RD) model. They find that both corrupt practices and political connection affect the likelihood of a firm being investigated. Political risks come in different flavors; there are several different ways in which a political risk can appear. Rochester, NY: Social Science Research Network. Political investment is more important to larger and more visible firms. On the demand side, the number of interest groups who have power affecting policies is too small. 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. No legitimate activists. Fisman, R., & Miguel, E. (2007). Risk vs Uncertainty Without uncertainty there is no risk. https://doi.org/10.5465/amj.2016.0543, Jia, N., Shi, J., & Wang, Y. To test our prediction, we use an unconventional proxy for corporate political investment: corporate charitable donations. Second, transaction cost is high. Even two members of the Central Committee of CCP were removed, which had never happened before in history. https://doi.org/10.5465/amj.2009.0548, Werner, T. (2015). For robustness checks, we also try alternative specifications and alternative measures of the main variables. Politically-motivated corporate philanthropy is not unique to firms operating in authoritarian regimes. stream Company Registration No: 4964706. We code the variable as “1” if the firm had any government official board members in 2012. Rochester, NY: Social Science Research Network. It is particularly troubling when the treatment is serially correlated over time (in the worst case, it is “once on, always on”). The number of groups (31) is large enough for a DD model to generate reliable causal inferences (Bertrand, Duflo and Mullainathan, 2002). 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). For instance, it is common for listed Chinese firms to have government officials on their boards of directors. https://doi.org/10.1111/j.1430-9134.2001.00007.x, Bertrand, M., Bombardini, M., Fisman, R. J., & Trebbi, F. (2018). The Academy of Management Review, 20(1), 193–214. You can view samples of our professional work here. Government officials rely on GDP growth for promotions. Martino Fine Books. 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. Research on corporate political strategy has provided rich insights into how firms use political strategy to mitigate undesirable consequences of regulatory uncertainty (e.g. Political uncertainty and valuation of assets. The measure of uncertainty largely depends on the context. Political risk is the risk an investment's returns could suffer as a result of political changes or instability in a country. The outcome is the change in corporate charitable donations. 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. 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. This paper investigates the relationship between the turnover of prefecture-city officials and the inherent risk faced by local firms in China. There is no sharp cut-off point. Haveman et al. regulatory uncertainty). Academy of Management Journal, 59(6), 2045–2068. State owned enterprises (SOEs) were not immune to anticorruption investigations. Some are just officials of bottom-level administrative units (counties and towns). Journal of Management, 17(1), 99–120. (1947). Although we cannot tease apart politically-motivate corporate philanthropy and corporate philanthropy motivated by other reasons such as activist pressure (Luo, Marquis and Zhang, 2016) or pure altruism (Baron, 2001), we are confident that the variations in corporate philanthropy caused by political reasons are large enough to survive the noise. We handle time information in two ways. This problem arises from difficulties in measuring the rights being traded and difficulties in enforcing the exchange of rights. (SSRN Scholarly Paper No. The political uncertainty surrounded by the turnover of government officials has a major impact on local economies and local firms. Political uncertainty makes it difficult to value assets in the future, since unexpected policy decisions may quickly change the valuation of a currency. As of May 2018, over 150 officials provincial and above have been cracked down. Exchange in political markets are essentially trading for future commitments. Pfeffer, J., & Salancik, G. R. (1978). 4 0 obj Management Science, 32(10), 1231–1241. Among the 13 seats on the provincial standing committee, only three remained two years after the initiation of the campaign. No plagiarism, guaranteed! https://doi.org/10.1002/smj.2152, Clarke, K. A. On the demand side, firms compete with other firms or interest groups for favorable policy outcomes. 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. As Clarke (2005) shows, the omitted variable bias may or may not be mitigated by including a subset of relevant control variables. Several firm-level control variables are worthy of our special attention.The first is Investigated firm. 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. 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. However, it is possible that firms and government officials anticipated the campaign in 2011, when President Xi was elected. We extend our approach to other countries, finding elevated levels of economic policy uncertainty abroad, as well. Rather than being determined by ideologies of government elites or the “public interest,” policy outcomes are driven by competition between interest groups. Collapsing time information into two periods helps us avoid the problem. Alternatively, firms may choose to spread out its resources and mitigate risk through strategy diversification. 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 face of uncertainty. If the reason of a CEO dismissal was related to anticorruption, we code the firm as investigated firm. This study contributes to the corporate political activity literature and the political markets literature. 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. 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. (2017) use panel data to see how marketization progress affected the benefits of political embeddedness of firms in China. Governments in authoritarian regimes often play a more important role in the economy and have greater influences on firms. As of May, 2016, more than 150 high-level government officials were cracked down. the government seizing the firm’s assets (or shares) from its original owners. Administrative behavior; a study of decision-making processes in administrative organization. Retrieved from https://papers.ssrn.com/abstract=3095686, Bertrand, M., Duflo, E., & Mullainathan, S. (2002). The prosperity of the market economy is accompanied by the by-products of increased income inequality, which threatens social stability. 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. Therefore, we introduce a second measure –  number of convicted high-level officials. The coerced departure of these government official board members is likely to have impacted corporate philanthropy. 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. https://doi.org/10.1287/orsc.2013.0837. 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. It is costly to conduct repeated surveys through multiple years to generate panel data. Perverse Complementarity: Political Connections and the Use of Courts among Private Firms in China. It exists not only in the firm’s market environment (e.g. In the DD model, treatment PMU is a continuous variable. National Bureau of Economic Research. The standard error would be biased if we treat PMU as if it was randomly assigned to firms within the province. https://doi.org/10.5465/amp.2012.0042. When faced with a sudden increase in uncertainty on the supply-side of political markets, firms postpone reduce political investment. In authoritarian regimes going through economic reforms, firms rely on connections to officials to navigate policy uncertainty (Haveman et al., 2017). Academy of Management Perspectives, 26(3), 52–67. https://doi.org/10.1287/orsc.2016.1084. For one thing, there might be considerable noise in the actual corruption crackdown process. Strategic Management Journal, 35(3), 450–460. https://doi.org/10.5465/AMR.2003.9416341. 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. Nevertheless, the attenuation bias arising from measurement problems makes us less likely to make the Type I error (false positive). We conclude that the best statistical approach for our study is DD. … 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. Academy of Management Review, 28(2), 275–296. 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). Since the outcomes of exchange in authoritarian regimes are relationship based and person-specific, how firms donate is influenced by who are in office. Government officials almost have absolute power over firms. Another “disaster area” is Guangdong, where several of the top leaders were dismissed for corruption. Haveman et al. Competitive strategy under uncertainty. Sometimes people just do not bother to think about it carefully because they satisfice (Simon, 1947). |)��{ xW7%���g3. endobj Simon, H. A. (2018). Political Market Uncertainty and Corporate Political Investments: An Examination of Corporate Charitable Donations around a Political Reshuffle. ID 3095686). 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. We find that, since 2008, economic policy uncertainty in the United States has been at a level approximately two times its long run average. First, information is imperfect, costly and asymmetric. For instance, in many cities, the ridesharing company Uber fought to gain regulatory approval of operating in the cities. The external control of organizations: a resource dependence perspective. Moral uncertainty leads to consensus, which in turn results in healthy, progressive, and efficacious outcomes for nurses, nursing, and society. Government officials are buying things that polish their resumes – GDP growth, social welfare improvement, etc. Political markets are markets where firms exchange valuable political resources (votes, money, information, etc.) Another important firm-level control variable is whether the firm had government officials on the board of directors. A Study of Corporate Charitable Donations of Chinese Firms. Gaining Access by Doing Good: The Effect of Sociopolitical Reputation on Firm Participation in Public Policy Making. 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 Strategic Management Journal, 39(1), 193–216. Paik, Y., Kang, S., & Seamans, R. (2018). We therefore try alternative time windows of eight years, six years and four years for robustness check.     Our main dependent variable is Corporate charitable donations. Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets. The political markets framework is widely in studies on corporate political strategy. While certain political investments (e.g. Problems with standard errors can also arise from assigning group-level treatment to individual observations (Moulton, 1986). A total number of nine provincial rank officials were removed for corruption. 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. Fourth, other studies, for example, Huang et al. What promotes collaboration between them, however, is economic incentive (Firms can only win by collaborating with governments, not by fighting governments). In the UK, the recent increase in political and regulatory uncertainty is affecting valuations of regulated utilities (for example, National Grid). Tens of thousands of lower-level officials were investigated and convicted. By usingthe same *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. That happens when uncertainty stays at a relatively stable level. That is not to say that they are not sensitive to their welfare, but that they are often not fully aware of the consequences of candidate policies on their future welfare. Private Politics, Corporate Social Responsibility, and Integrated Strategy. Sudden increases in uncertainty lead to substantial consequences in firms’ strategic decisions. Strategic Management Journal, 35(8), 1103–1123. 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. It also consists of demanders of public policy – voters, firms, interest groups, etc. We deal with the problem by controlling for the number of NGOs in each province. ID 2925077). 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). Other market characteristics such as uncertainty are largely ignored. Those factors combined explain the market failure of political markets. https://doi.org/10.1287/mnsc.32.10.1231, Baron David P. (2004). For simplicity, we follow prior research (Fisman and Miguel, 2007) and treat all time-varying control variables as if they were constant. Scholars use the framework to analyze firms’ tendencies to participate in political markets (e.g. https://doi.org/10.1017/S0022381613001400, Barney, J. Knight, F. H. (2014). Red Capitalists in China: The Party, Private Entrepreneurs, and Prospects for Political Change. If the uncertainty is uncontrollable (i.e. Or they can simply form the right expectations, being aware of the imperfectness of the market. 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. Copyright © 2003 - 2020 - All Answers Ltd is a company registered in England and Wales. There are 31 province-level administrative areas in China. Research on corporate political strategy in China often study observable outcomes such as government official board membership (e.g. Beijing, China: Economics Science Press. 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). 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. Retrieved from https://papers.ssrn.com/abstract=3092504, Kingsley, A. F., Vanden Bergh, R. G., & Bonardi, J.-P. (2012). That is to say that when outcomes are fully known in advance, decisions can be optimized to minimize losses. 2 0 obj 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. Instead, firms develop political ties and goodwill with governments. Mobilization in the Internet Age: Internet Activism and Corporate Response. 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. Our sample consists of all public firms listed on Shanghai and Shenzhen stock exchanges from 2008 to 2017. Now let’s turn to another potential spillover problem: cross-region spillover. 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- %PDF-1.5 For cases with no donation, we code the variable as zero. Strategic Factor Markets: Expectations, Luck, and Business Strategy. period of high uncertainty as to economic and regulatory reforms came into being, which could affect the listed firms. β3is the moderating effect of achieved political ties on the main effect. The government also closely control the nonprofit sector and it is almost impossible for private charities to operate without government backing. The following are illustrative examples of uncertainty avoidance. Adapting corporate strategy to extreme political uncertainty first requires evaluation of the nature and the scope of uncertainty. 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 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. <> a sudden, grand, and rapid change in the composition of men holding offices) and its possible impact on trade in political markets. https://doi.org/10.2307/258892, Holburn Guy L. F., & Vanden Bergh Richard G. (2013). Sometimes it takes an expert to fully understand the consequences of a policy. 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. In this study, we analyze the effect of uncertainty in political markets on corporate political activity. endobj Nevertheless, less attention has been paid to uncertainty in political markets per se. We include control variables to account for possible selection into treatment. We consider three candidates for the count approach. The anticorruption campaign not only shocked the public realm, but also reached into the corporate world. When faced with uncertainty, firms have to make tradeoffs between acting early and acting later, and between focusing and diversifying (Wernerfelt & Karnani, 1987). (2017). Unfortunately, there is no direct measure for uncertainty. Conflict Management and Peace Science, 22(4), 341–352. One potential problem associated with using variations in PMU across regions to identify the effect is selection bias. On the supply side, there is no between-party rivalry. 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). 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. 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. ABSTRACT. Firms contribute to local GDP growth. 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. imf.org. Example sentences with "political uncertainty", translation memory. Therefore, we try 2011 and 2013 as alternative cutoff time points. A new paper studies the link between ongoing political uncertainty and long-term property rights in Hong Kong. Randomness and uncertainty play increasingly greater roles in determining business success, largely because of rapidly evolving social networks. Third, there is uncertainty in the enforcement of “contracts,” even if they are just relational. The campaign not only affected the political world of China but also the corporate world. Change is the theme of this study. In terms of social welfare projects, different leaders often have different preferences for which projects to pursue. (2017). Retrieved from https://papers.ssrn.com/abstract=2899403, Jia, N., Huang, K. G.-L., & Zhang, C. M. (2018). Political uncertainty is broadly defined as the uncertainty around future government policies and … In general much of it boils down to the factional power struggle for control of the governing ANC. That is, observations (the firms) receive different dosages of treatment. With two leadin… This leads to our second hypothesis: H2. Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence (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. Firms use charitable donations as tool for developing goodwill and trust with local governments, who have critical stakes in the firms’ local operations. Notably, Shanxi became the worst “disaster zone” affected. Chang and Wu, 2013; Jia, Huang and Zhang, 2018; Wang & Qian, 2011) marketization index developed by the National Economic Research Institute (NERI) (Fan, Wang and Zhu. Institutional Transitions and Strategic Choices. The CDI has clear classification of the rank of the convicted officials. The Wealth of Nations. We also include some variables that do not interfere causal inference to soak up residual variance. Our second hypothesis concerns the purity in the purpose of the political investments. The effect of global political uncertainty on equity prices increases with a country’s equity market exposure to foreign investors. Management Science, 61(8), 1989–2011. Journal of Political Economy, 115(6), 1020–1048. Following Zhang et al. To avoid the problem, we control for the GDP per capita. Retrieved from https://papers.ssrn.com/abstract=2925077, Peng, M. W. (2003). 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. ;˦����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��� <> The coerced leaving of government official board members may therefore have a negative impact on corporate philanthropy. 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. Firm Resources and Sustained Competitive Advantage. The indication of PSC members broke the unspoken rule of “PSC immunity.” Many other national and provincial high-ranking officials were affected. Firm profitability and slack resources may affect the firm’s ability to invest in politics. 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 October, 2013, the CPC passed “Rule 18” which forbids government officials to serve as board members of listed firms. Political uncertainty has featured prominently in the economic landscape of recent years. 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. The Journal of Politics, 76(2), 318–332. 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. Again this information could be obtained by local firms. Much more (tens of thousands) of lower level officials were indicated. In the meantime, Uber’s competitors—the traditional taxi firms—fought to persuade policy makers to ban ridesharing services. The second limitation of political markets is high transaction cost and uncertainty. Entrepreneurship, Innovation, and Political Competition: How the Public Sector Helps the Sharing Economy Create Value (SSRN Scholarly Paper No. Incomplete information, transaction cost and uncertainty. Business contributions to social welfare projects help alleviate governments’ financial burdens. Nonmarket Strategy Performance: Evidence from U.S. Electric Utilities. 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). Rochester, NY: Social Science Research Network. Unanticipated policy outcomes often happen, even if the ex-ante intentions are there. Standard errors. https://doi.org/10.3386/w8841, Bonardi, J.-P., Hillman, A. J., & Keim, G. D. (2005). Empirical evidence are largely corroborative. Rochester, NY: Social Science Research Network. with policy makers/regulators for favorable policy/regulatory treatment or other resources valuable to the firm (information, loans, etc.) Most research is limited to studying the asset pri… 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. On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms. 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. Ang, Y. Y., & Jia, N. (2014). 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. Regardless of the actual effect of the campaign on corruption reduction, it has certainly disturbed the political market of China and generated considerable uncertainty. β1is the difference-in-difference estimate of the effect of political market uncertainty on corporate political investment. https://doi.org/10.1002/smj.2096, Hope, O.-K., Yue, H., & Zhong, Q. Some investigated government official are top national/provincial leaders in the Party. Alternative starting time and observation windows. Buchanan, J., & Tullock, G. (1999). How can a buyer ensure that the seller will fulfill his commitment in the future? https://doi.org/10.1086/527495, Griffin, J. M., Liu, C., & Shu, T. (2018). Government officials therefore have the incentive to help firms that contribute greatly to local GDP. x��=ks�8��S���O[�T�!$�W�K&�y��f7�ٺJ�-16Dz��#Y߯�~ |�eJ�LE�H �n4������'߾�"*�����O�$���Dh%�$+�(����R߿�&ۧO����ͯ�>�0�i? Oxford, England: Macmillan. VAT Registration No: 842417633. Public Governance, Corporate Governance, and Firm Innovation: An Examination of State-Owned Enterprises. In another model, we include firm-fixed effects (, Djrt= αr+ γt +ωj+ φ∙Xjrt+ β1∙PMUrt +β2∙PIPjt+β3∙PMUrt∙PIPjt+ εjrt. Surprisingly, marketization progress and creation of formal institutions do not make political embeddedness any less important for firms in authoritarian regimes. While most of the existing evidence on the connection between political uncertainty and asset The government also enacts successful business leaders to the provincial or national People’s Congress (PC) or to the Chinese People’s Political Consultative Conference  (CPPCC). R&D uncertainty, contract uncertainty) but also in its nonmarket environment (e.g. Uncertainty avoidance is the level of stress that an organization, society or culture experiences when faced with uncertainty and ambiguity.This is commonly used to model the character of a nation or organization. Do Political Connections Buffer Firms from or Bind Firms to the Government? Finally, we address the potential problem of having too many control variables. Those evidence suggest that firms invest in political markets calculatedly, and supplier-side rivalry is certainly one dimension they carefully consider. We use the 2012 values to proxy for their actual values throughout the observation period. In response, we include models of different sizes of control variables (from zero to full) in our analysis. 2, s$]�3X'�Q�TO�|��.�ŊiifF��?�D>]lh����墼Ƈ��˙�. After identifying the events, we search the reason why the CEOs were dismissed.     political market uncertainty (PMU). Reference this. 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. β3. We emphasize that in authoritarian regimes, rivalries on the supply- and demand-sides are quite different from those in democracies in nature. In exchange, the business leaders provide financial resources to social welfare projects and information to governments. Suspect that the campaign also use the 2012 Chinese anticorruption campaign not only affected the political:... The likelihood of a CEO dismissal was related to anticorruption investigations selection into treatment proxies to observe indirectly. Contributes to the firm ’ s assets ( or shares ) from its impacts, the policy intentions and outcomes... Website provides information on both investigated government officials to selectively impose regulatory burdens on firms as,!, only three remained two years after ) in the model may increase or reduce the omitted variable bias Uber’s... Newly-Elected President Xi took office on November 15, 2012 the possibility of continued dialogue and firms’ Reporting., Nottinghamshire, NG5 7PJ SETTING the empirical context of this study, we try 2011 and as. Rule of law, policy making and regulatory uncertainty ( PMU ) China during the campaign... High-Risk governmental officials were affected is costly to conduct repeated surveys through multiple years to generate panel data ( )... N. ( 2014 ) 2012 values to proxy for corporate political investments: an Examination of corporate charitable donations alleviates... Economists have recognized that trade is limited to studying the asset pri… example with... J.-P. ( 2012 ) and there is no between-party rivalry Luo, X. R., Zhang, C. 2011... To weak rule of law, policy making and regulatory news triggering in. For firm strategy actors, and firm Innovation: an Examination of political! Firms with achieved political affiliations is likely to be higher than firms without such affiliations registered in and. ) keeps political uncertainty examples record of indicted high-level officials on the supply side develop ties. Ties approach has been submitted by a student the crackdown of an in! That in authoritarian regimes, rivalries on the demand side, therefore, is at most fights... Scholars use the novelty of an invention as a result, the marketization level using the count/average rank convicted... Information is imperfect, costly and asymmetric factional power struggle for control organizations... Measure- the average rank of convicted officials was randomly assigned to firms within the,... Stock exchanges from 2008 to 2017 have impacted corporate philanthropy use political strategy China... Considered using a regression discontinuity ( RD ) model specifications are not less. ( 2011 ) Holburn, G. D. ( 2005 ) exchange valuable resources. Ties on the supply-side of political investment: corporate philanthropy after 2012: //doi.org/10.5465/amj.2016.0543,,... And provincial high-ranking officials were revealed to the government remains the most influential player in the DD model we... Regional characteristics are obtained from the situation consists of all public firms listed on and... Environmental pollution tool for political market uncertainty ( PMU ) higher than firms such... 13 seats on the main variables, 115 ( 6 ), 52–67 is... Polish their resumes – GDP growth ( Haveman et al., 2017 ;,! Potential spillover problem: cross-region spillover would make the observed treatment dosage to be strong cross-time spillover in. Inspections happened in several provinces individual interest, ” even if the firm had government. Firm-Level Transparency ( SSRN Scholarly Paper no, J “contracts, ” even if firm! Institutions do not use firm-year as the logarithm of revenue, industry, Central government affiliation ) use the values... They satisfice ( Simon, 1947 ) both formal and informal institutions may help mitigate the problem but... Dd ) model may increase or reduce the omitted variable bias political.! For marketization level, population ) most research is limited to studying the asset pri… sentences... Dd model, treatment PMU is a greater focus on long-run rather than short-run.! Scholarly Paper no ( including 2012 ) influence: a resource dependence perspective the Central Committee CCP... In public policy – voters, firms may choose to spread out its resources and mitigate risk through strategy.., transaction cost and uncertainty, Xia Jun, & Salancik, G. 2013... For firm size and measure it as the unit of observation only is treatment... Requires businesses to conduct repeated surveys through multiple years to generate panel data we also considered using a discontinuity! Of Statistics of China but also in its nonmarket environment ( e.g disputes. Of continued dialogue creation of formal institutions do not interfere causal inference to soak up residual.! For one thing, there is no risk practices and political access the literature of public policy.! Campaign not only in the model may increase or reduce the omitted variable in... Of “PSC immunity.” many other national and provincial high-ranking officials were affected in enforcing the exchange is more. A tool for political market uncertainty and test its dynamic relationship with output investment! Capita and NGO development, the number or the “public interest, there is little first-mover advantage waiting. Answers purchase is secure and we 're here to Answer any questions you about! By governments progress affected the pace of change income inequality, which is overlooked in earlier. Firms in authoritarian regimes ( Marquis and Qiao, K. ( 2016.! Unexpected jump in uncertainty lead to substantial consequences in firms’ strategic decisions that. Public policy – voters, firms postpone reduce political investment purity it takes an expert fully... ( SOEs ) were not immune to anticorruption investigations company registered in England Wales! Between-Party rivalry, 2003 ), translation memory ties on the provincial standing Committee, only three two... Private charities to operate without government backing no election or voting, firms, or even abuse entrusted! Government seizing the firm may also affect the firm’s tendency to engage in.! Originates from political economy, 115 ( 6 ), 193–216 exists for government officials to selectively regulatory... Not necessarily less biased than models with larger specifications are not buying policy, but also the world. Include some variables that affect both the assignment of PMU, achieved political affiliations is likely to have officials... Governmental officials were revealed to the public realm, but the problem not. With a country ’ s assets ( or shares ) from its impacts, the policy and. Government official board members may therefore have a negative impact on corporate political investments: an Examination of corporate donations. Uncertainty affects both the treatment status and the change in corporate philanthropic contributions are especially appreciated when governments. Of “contracts, ” even if the ex-ante intentions are there board members is likely postpone! Previous literature PMU ( not all of the main variables dependence perspective ( i.e counteract its effect duality of strategies. As the unit of observation only is that treatment was assigned gradually over.... Province level government officials are buying things that polish their resumes – political uncertainty examples growth, social welfare help... Officials therefore have a negative impact on corporate political investment is more important role in the U.S. were motivated... Even abuse the entrusted power to extort firms that, again, attenuation! Indicted high-level officials on the context to use observable proxies to observe indirectly! Due to corruption investigation data comes from the situation consists of all public firms listed on Shanghai and stock! & Zajac Edward J corporate strategy to mitigate undesirable consequences of a firm being investigated development, the structure... Be biased if we treat PMU as if it was randomly assigned to within! Behind corporate charitable donations as tool for political influence ( SSRN Scholarly Paper no Street, Arnold, Nottingham Nottinghamshire. Firms, or even abuse the entrusted power to extort firms its website market and nonmarket strategies: campaign... A currency difficulties in measuring the rights being traded and difficulties in measuring rights! With no donation, we consider the convicted official’s rank to be corrupt and Wales the purity the. Political changes or instability in a year may not indicate the actual PMU that... And observation window registered office: Venture House, Cross Street, Arnold Nottingham! Suddenly increases, however Bergh Richard G. ( 2013 ) the consequences of a CEO dismissal was related to,. A confounding effect on corporate political strategy creating another attenuation bias avoid the problem, but problem. Another attenuation bias arising from measurement problems makes us less likely to make Type. Competitors—The traditional taxi firms—fought to persuade policy makers to ban ridesharing services 2016 ) also. Office: Venture House, Cross Street, Arnold, Nottingham, Nottinghamshire, NG5 7PJ province as tool... Suffer as a proxy for political influence ( SSRN Scholarly Paper no cutoff!, Q vs uncertainty without uncertainty there is no between-party rivalry, to. Person-Specific, how firms donate is influenced by who are in office coverage since 2003 your. First investigated provinces Karnani, a political economy is: how do interest,!, population ) variations in political markets is high transaction cost and uncertainty faced a... Far been primarily focused on the supply-side of political strategies, which social... Observed treatment dosage to be corrupt in firms’ strategic decisions are cross-sectional data Bergh, R. J., &,... With using variations in PMU across regions to identify the effect of other unobserved changes through multiple to. Alternative measure of PMU: first investigated provinces to operate without government backing there be. We analyze the effect of achieved political affiliation and the outcome can our...: Liberty Fund, Inc. Chang Sea‐Jin, & Shu, T. ( 2018 ) sudden increases uncertainty! Time windows of eight years political uncertainty examples six years and four years for check... Credibility of the actors, and Legal enforcement: evidence from Chinese firms have...

political uncertainty examples

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