political uncertainty examples

December 2, 2020 in Uncategorized

Those factors combined explain the market failure of political markets. Pfeffer, J., & Salancik, G. R. (1978). If GDP per capita was positively related to corporate philanthropy growth, we would overestimate the magnitude of the coefficient on PMU, or even have a false positive inference. Nonmarket Strategy Performance: Evidence from U.S. Electric Utilities. (2017). The indication of PSC members broke the unspoken rule of “PSC immunity.” Many other national and provincial high-ranking officials were affected. Political risk is the risk an investment's returns could suffer as a result of political changes or instability in a country. (2017) use panel data to see how marketization progress affected the benefits of political embeddedness of firms in China. We utilize this exogenous shock to identify the effects of increased political uncertainty on corporate political investments. We handle time information in two ways. VAT Registration No: 842417633. the government seizing the firm’s assets (or shares) from its original owners. Fisman, R., & Miguel, E. (2007). Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets. Nevertheless, less attention has been paid to uncertainty in political markets per se. 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. A total number of nine provincial rank officials were removed for corruption. The Dynamics of Political Embeddedness in China. We code the variable as “1” if any of the firm’s top leaders was investigated. Mobilization in the Internet Age: Internet Activism and Corporate Response. A high probability of a change of government implies uncertai… It is costly to conduct repeated surveys through multiple years to generate panel data. For instance, it is common for listed Chinese firms to have government officials on their boards of directors. Instead, firms develop political ties and goodwill with governments. We then introduce political market uncertainty and analyze its impact on corporate political strategy. The uncertainty arising from the situation consists of two parts: the objective part and the subjective part. For the regression using annual data, we cluster standard errors by region, hence allowing for serial correlation in treatments over time. We also control for population. A Transaction Cost Theory of Politics. ����z�i��(+C��_� �~�%�P�p�i5yE��.Y_�qs%��#��I6@y��D�"���"��of0��w�%/�ru����c!Ǻ"��W֕E�B|G�(c�Q The Central Commission for Discipline Inspection (CCDI) keeps a record of indicted high-level officials on its website. One important contribution of the political markets perspective is the notion of exchange, which becomes the foundation of corporate political strategy analysis. Change is the theme of this study. Adapting corporate strategy to extreme political uncertainty first requires evaluation of the nature and the scope of uncertainty. Retrieved from https://papers.ssrn.com/abstract=2899403, Jia, N., Huang, K. G.-L., & Zhang, C. M. (2018). Political instability affects growth because it increases policy uncertainty, which has negative effects on productive economic decisions such as investment and saving. It has been a challenge to study political investments in China, since there is no public information on how much firms spend on corporate political activities. In October, 2013, the CPC passed “Rule 18” which forbids government officials to serve as board members of listed firms. We therefore try alternative time windows of eight years, six years and four years for robustness check. https://doi.org/10.5465/amp.2012.0042. |)��{ xW7%���g3. Below we discuss several important characteristics of political markets: supply- and demand-side rivalries, incomplete information, transaction cost and uncertainty. Consider the effect of a major political reshuffle (i.e. Note that corporate charitable donations in China are relationship-specific investments. (2013). By usingthe same The economic incentive that aligns the interests of firms and governments is GDP growth (Haveman et al., 2017). The Attractiveness of Political Markets: Implications for Firm Strategy. Regional characteristics (GDP per capita, number of NGOs, marketization level, population). However, it is possible that firms and government officials anticipated the campaign in 2011, when President Xi was elected. The DD method allows us to filter the effect of other unobserved changes. Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence (SSRN Scholarly Paper No. It also consists of demanders of public policy – voters, firms, interest groups, etc. Those evidence suggest that firms invest in political markets calculatedly, and supplier-side rivalry is certainly one dimension they carefully consider. period of high uncertainty as to economic and regulatory reforms came into being, which could affect the listed firms. We conclude that the best statistical approach for our study is DD. how uncertainty affects both the level and the timing of R&D investment. Some suspect that the campaign could in part be factional fight in nature. endobj Government officials therefore have the incentive to help firms that contribute greatly to local GDP. Consequently, the number or the average rank of convicted officials in a year may not indicate the actual PMU in that year. Different government leaders have different policy agendas and resource demands. The government also closely control the nonprofit sector and it is almost impossible for private charities to operate without government backing. In exchange, better policy treatments or greater accesses to resource are offered. For cases with no donation, we code the variable as zero. sharp declines in reaction to news); an increase in share price volatility; 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. https://doi.org/10.1287/mnsc.2014.2092, Wernerfelt, B., & Karnani, A. 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! The exchange is much more relational than contractual (i.e. Tens of thousands of lower-level officials were investigated and convicted. Academy of Management Journal, 49(6), 1209–1228. Company Registration No: 4964706. Is the Chinese Corporate Anti-Corruption Campaign Authentic? endobj Strategic Management Journal, 8(2), 187–194. In the meantime, Uber’s competitors—the traditional taxi firms—fought to persuade policy makers to ban ridesharing services. As of May, 2016, more than 150 high-level government officials were cracked down. Sometimes people just do not bother to think about it carefully because they satisfice (Simon, 1947). Several top national leaders were targeted, including former military leaders Xu Caihou and Guo Boxiong and former Politburo Standing Committee (PSC) member Zhou Yongkang. In the UK, the recent increase in political and regulatory uncertainty is affecting valuations of regulated utilities (for example, National Grid). Academy of Management Journal, 54(6), 1159–1181. (2017). NERI Index of Marketization of China’s Provinces 2011. Others have modeled the effects of political uncertainty in a macroeconomic context. Politically-motivated corporate philanthropy is not unique to firms operating in authoritarian regimes. Whose Call to Answer: Institutional Complexity and Firms’ CSR Reporting. All work is written to order. 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. In December 2012, a massive anticorruption campaign was initiated in China, affecting tens of thousands of government officials in the following years and changing the political landscape of the country dramatically. The 2012 Chinese anticorruption campaign provides a unique laboratory for this study. 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. a sudden, grand, and rapid change in the composition of men holding offices) and its possible impact on trade in political markets. 2011) as a proxy. A new paper studies the link between ongoing political uncertainty and long-term property rights in Hong Kong. Journal of Econometrics, 32(3), 385–397. 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. This problem arises from difficulties in measuring the rights being traded and difficulties in enforcing the exchange of rights. Political instability is defined as the propensity of a change in the executive power, either by constitutional or unconstitutional means. Reference this. Another “disaster area” is Guangdong, where several of the top leaders were dismissed for corruption. Nevertheless, in authoritarian regimes such as China, politically-motivated corporate philanthropy is particularly salient (Zhang, Marquis and Qiao, 2016). Journal of Management, 17(1), 99–120. The inspections happened in several rounds: some provinces were investigated in the earlier rounds. A high propensity of an executive collapse leads to slower growth and, conversely, whether low growth increases the propensity of a government change. Alternative starting time and observation windows. B. Recent evidence (for example, Pastor […] Public Governance, Corporate Governance, and Firm Innovation: An Examination of State-Owned Enterprises. Initiated in December 2012 by the then newly-elected President Xi Jinping, the campaign is considered the most influential anticorruption movement in modern China. The Calculus of Consent (Volume 3 ed. Institutions, institutional change, and economic performance. 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. The politically-motivated proportion of charitable donations of firms with achieved political affiliations is likely to be higher than firms without such affiliations. We discussed earlier the potential bias of using count information as a proxy for PMU (not all high-risk governmental officials were convicted). Such information may spillover to firms. Corporate political investments how firms obtain strategic political resources (goodwill, trust, access to valuable resources). New York: Harper & Row. β1is the difference-in-difference estimate of the effect of political market uncertainty on corporate political investment. A sudden, unexpected jump in uncertainty is likely to restrict trade and cause the market to shrink. Some corporate leaders were investigated and convicted to be corrupt. (2018) estimate that a sizable amount of corporate charitable donations in the U.S. were politically motivated. The Phantom Menace: Omitted Variable Bias in Econometric Research. There is no clear-cut measure. https://doi.org/10.2307/258892, Holburn Guy L. F., & Vanden Bergh Richard G. (2013). It is estimated that over 100 CEOs of SOEs were forced to resign due to corruption investigation. Additionally, our main model has an observation period of ten years (five years before and five years after). It not only allocates critical resources (e.g. The best we can do is to use observable proxies to observe uncertainty indirectly. How PMU is operationalized is critical to the credibility of the findings of this study. Problems with standard errors can also arise from assigning group-level treatment to individual observations (Moulton, 1986). Administrative behavior; a study of decision-making processes in administrative organization. The second measurement problem arises from the inaccuracy of the information from the CDI website. Table 1. In the absence of individual interest, there is no interest” (1987: 246). Firms’ political strategies are tailored to suit the specific leaders they try to access. We include control variables to account for possible selection into treatment.     Our main dependent variable is Corporate charitable donations. Firms contribute to local GDP growth. β3. Sometimes it takes an expert to fully understand the consequences of a policy. Entrepreneurship, Innovation, and Political Competition: How the Public Sector Helps the Sharing Economy Create Value (SSRN Scholarly Paper No. 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.. Lacking optimal measurements and data sources, we use an unconventional proxy for corporate political investments: 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. The list of people investigated is still growing when this draft is written (June 2, 2018). Academy of Management Journal, 60(1), 321–344. We measure profitability as return on assets (ROA) and slack resources as free cashflow over total assets (Wang and Qian 2011). They are characterized with costly information, subjective models on the part of the actors, and imperfect enforcement of agreements. endobj One way is to keep the information of each year. It creates a sudden exogenous shock to the supply side of political markets, enabling us to observe the impacts of increased uncertainty on corporate political investment. Do Political Connections Buffer Firms from or Bind Firms to the Government? A� D6ݏ�$�'�n���x�vD�Q��H'��=d On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms. Finally, we address the potential problem of having too many control variables. Some investigated government official are top national/provincial leaders in the Party. For instance, in many cities, the ridesharing company Uber fought to gain regulatory approval of operating in the cities. We also considered using a regression discontinuity (RD) model. 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. Red Capitalists in China: The Party, Private Entrepreneurs, and Prospects for Political Change. Cambridge; New York: Cambridge University Press. Sudden increases in uncertainty lead to substantial consequences in firms’ strategic decisions. Disclaimer: This work has been submitted by a student. We consider the convicted official’s rank to be high if his rank is provincial-level or above. A political reshuffle generates uncertainty on the supply side. 3 For example, see “Global Political Uncertainty Weighs on Growth Outlook,” Ian Talley, Wall Street Ang and Jia (2014) investigate how political connectedness affect the use of courts to resolve disputes for firms in China. Organization Science, 25(1), 127–148. The common good can only be obtained through consensus, and moral uncertainty directly supports this necessary function of the political process. (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. Journal of Political Economy, 115(6), 1020–1048. Periods of political uncertainty in Ukraine have affected the pace of change. The prosperity of the market economy is accompanied by the by-products of increased income inequality, which threatens social stability. The Academy of Management Review, 20(1), 193–214. The campaign was launched soon after President Xi took office on November 15, 2012. https://doi.org/10.3386/w8841, Bonardi, J.-P., Hillman, A. J., & Keim, G. D. (2005). For one thing, there might be considerable noise in the actual corruption crackdown process. Private Politics, Corporate Social Responsibility, and Integrated Strategy. Institutional barriers and industry dynamics. Cambridge, UK ; New York: Cambridge University Press. Again this information could be obtained by local firms. 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. 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. When faced with a sudden increase in uncertainty on the supply-side of political markets, firms postpone reduce political investment. <> The website provides information on both investigated government officials and investigated managers. Summary of Variables, Measures and Data Sources. Rochester, NY: Social Science Research Network. (2017). Regardless of the actual effect of the campaign on corruption reduction, it has certainly disturbed the political market of China and generated considerable uncertainty. The industry of the firm may also affect the firm’s tendency to engage in philanthropy. Additionally, we discuss the rights exchanged and the types of political strategies, which are quite different from those used in democracies. Political uncertainty is broadly defined as the uncertainty around future government policies and … Panel data for multiple years are needed. 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. Rochester, NY: Social Science Research Network. While this measure captures the scope of the political turbulence, it does not capture its depth. We examine political market uncertainty in an authoritarian regime – China, where a recent anticorruption campaign has generated considerable turbulences in regional political markets. To test our prediction, we use an unconventional proxy for corporate political investment: corporate charitable donations. 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). We will just use information from the CDI. The empirical context of this study is an authoritarian regime that has recently been through a major political reshuffle—China. How Much Should We Trust Differences-in-Differences Estimates? Firm Resources and Sustained Competitive Advantage. *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. The government remains the most influential player in the economy and a powerful stakeholder of firms. The campaign has generated a political earthquake in several provinces. 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. We control for firm size and measure it as the logarithm of revenue. Academy of Management Perspectives, 26(3), 52–67. 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. 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. 4 0 obj Our second hypothesis concerns the moderating effect of political investment purity. Cross-regional variations in political market uncertainty are utilized to identify the effect of political market uncertainty in a difference-in-difference (DD) model. Registered Data Controller No: Z1821391. https://doi.org/10.1287/mnsc.32.10.1231, Baron David P. (2004). Government officials are buying things that polish their resumes – GDP growth, social welfare improvement, etc. Like how equilibrium market price is determined in the classical supply and demand model, the attractiveness of political markets to a firm is determined by the intensity of rivalries on the supply- and the demand-sides (Hillman and Keim, 1995; Bornardi et al., 2005; Kingsley et al., 2012). political uncertainty can spillover from one country and influence the financial outcomes in other countries. If the uncertainty is uncontrollable (i.e. There are 31 province-level administrative areas in China. Firms use charitable donations as tool for developing goodwill and trust with local governments, who have critical stakes in the firms’ local operations. On the demand side, firms compete with other firms or interest groups for favorable policy outcomes. Martino Fine Books. Dissertation Strategic Management Journal, 39(1), 193–216. The first question North (1990) asks is: how do interest groups know their interests? Unanticipated policy outcomes often happen, even if the ex-ante intentions are there. x��=ks�8��S���O[�T�!$�W�K&�y��f7�ٺJ�-16Dz��#Y߯�~ |�eJ�LE�H �n4������'߾�"*�����O�$���Dh%�$+�(����R߿�&ۧO����ͯ�>�0�i? Political markets are markets where firms exchange valuable political resources (votes, money, information, etc.) 2 0 obj You can view samples of our professional work here. Fan, G., Wang, X., & Zhu, H. 2011. Compared to the investments that are purely aimed to generate political influence, investments that serve multiple purposes are likely to be affected less by sudden changes in conditions of political markets. The following are illustrative examples of uncertainty avoidance. Retrieved from https://papers.ssrn.com/abstract=2925077, Peng, M. W. (2003). We extend our approach to other countries, finding elevated levels of economic policy uncertainty abroad, as well. 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). 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. Corporate philanthropic contributions are especially appreciated when local governments have limited resources of their own (Dickson, 2003). Most research is limited to studying the asset pri… In our context, we use the number of convicted government officials in each province as a proxy for political market uncertainty. (SSRN Scholarly Paper No. The reason behind is information complexity, information cost and bounded rationality. The political ties approach has been well documented by the literature. We emphasize that in authoritarian regimes, rivalries on the supply- and demand-sides are quite different from those in democracies in nature. 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. We consider three candidates for the count approach. Organization Science, 27(5), 1307–1324. 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. 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. <> Giga-fren. First, consider imperfect information and bounded rationality. Even two members of the Central Committee of CCP were removed, which had never happened before in history. Dickson, B. J. For instance, the government requires businesses to conduct socially responsible practices (Marquis and Qian, 2014). Firms often compete with other policy demanders for policy outcomes favorable to themselves. In authoritarian regimes going through economic reforms, firms rely on connections to officials to navigate policy uncertainty (Haveman et al., 2017). The second limitation of political markets is high transaction cost and uncertainty. 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. One potential problem associated with using variations in PMU across regions to identify the effect is selection bias. The Academy of Management Review, 30(2), 397–413. Travel hesitation. The measure of uncertainty largely depends on the context. Among the 13 seats on the provincial standing committee, only three remained two years after the initiation of the campaign. We use achieved political affiliations (APA) as a proxy for this variable. We log-transform the amount of charitable donation for cases with positive donations. 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. 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. The external control of organizations: a resource dependence perspective. Political risks come in different flavors; there are several different ways in which a political risk can appear. Hence the power structure is highly asymmetric. R&D uncertainty, contract uncertainty) but also in its nonmarket environment (e.g. Including more control variables in the model may increase or reduce the omitted variable bias. What promotes collaboration between them, however, is economic incentive (Firms can only win by collaborating with governments, not by fighting governments). We've received widespread press coverage since 2003, Your All Answers purchase is secure and we're rated 4.4/5 on reviews.co.uk. We're here to answer any questions you have about our services. This practice is consistent with prior studies in other contexts. Risk is inherent in all action and inaction because future outcomes always involve an element of uncertainty. https://doi.org/10.1080/07388940500339183. 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). Policy makers are appointed rather than elected. governor or mayor) is certainty different from that associated with the crackdown of an administer in a town. When uncertainty suddenly increases, however, there is no time for new institutions to emerge to counteract its effect. The recent political uncertainty in Sukhumi seriously limited the possibility of continued dialogue. (1947). https://doi.org/10.5465/amj.2016.0543, Jia, N., Shi, J., & Wang, Y. (1991). 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 This is not an example of the work produced by our Dissertation Writing Service. Li Jing, Xia Jun, & Zajac Edward J. Both formal and informal institutions may help mitigate the problem, but the problem cannot be entirely avoided. However, surveys are subject to the limitation in data structure: most survey data are cross-sectional data. In terms of social welfare projects, different leaders often have different preferences for which projects to pursue. 1 0 obj International Variation in the Business-Government Interface: Institutional and Organizational Considerations. The CDI has clear classification of the rank of the convicted officials. The campaign not only affected the political world of China but also the corporate world. with policy makers/regulators for favorable policy/regulatory treatment or other resources valuable to the firm (information, loans, etc.) There is no sharp cut-off point. 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. edition). Consequently, we conjecture that the political market uncertainty level of provinces with a large number of convicted officials is higher than that of provinces with a small number of convicted officials. Other firm characteristics (size, ROA, slack resource, industry, central government affiliation). 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). <> The subjective part of the uncertainty, on the other hand, is caused by incomplete information or information asymmetry between the less informed entities and the more informative entities. UN-2. Political uncertainty and valuation of assets. Other market characteristics such as uncertainty are largely ignored.

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