political uncertainty examples

The campaign not only affected the political world of China but also the corporate world. 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. 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. the government seizing the firm’s assets (or shares) from its original owners. How PMU is operationalized is critical to the credibility of the findings of this study. Political uncertainty is broadly defined as the uncertainty around future government policies and … For instance, Bertrand et al. The prosperity of the market economy is accompanied by the by-products of increased income inequality, which threatens social stability. In exchange, better policy treatments or greater accesses to resource are offered. Summary of Variables, Measures and Data Sources. The uncertainty arising from the situation consists of two parts: the objective part and the subjective part. (2018). Rochester, NY: Social Science Research Network. That is, observations (the firms) receive different dosages of treatment. Additionally, our main model has an observation period of ten years (five years before and five years after). Perverse Complementarity: Political Connections and the Use of Courts among Private Firms in China. https://doi.org/10.5465/AMR.2003.9416341. it is difficult to attribute outcomes of corporate behavior to political uncertainty as the two are endogenously determined. The economic incentive that aligns the interests of firms and governments is GDP growth (Haveman et al., 2017). In the absence of individual interest, there is no interest” (1987: 246). Lastly, we consider integrating the first and the second measure to create an integrated measure- the average rank of convicted officials. The most famous manifestation of political risk is the expropriation; i.e. https://doi.org/10.1017/S0022381613001400, Barney, J. That happens when uncertainty stays at a relatively stable level. x��=ks�8��S���O[�T�!$�W�K&�y��f7�ٺJ�-16Dz��#Y߯�~ |�eJ�LE�H �n4������'߾�"*�����O�$���Dh%�$+�(����R߿�&ۧO����ͯ�>�0�i? 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. 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. On the demand side, firms compete with other firms or interest groups for favorable policy outcomes. Other firm characteristics (size, ROA, slack resource, industry, central government affiliation). Political investment is more important to larger and more visible firms. Lacking optimal measurements and data sources, we use an unconventional proxy for corporate political investments: corporate charitable donations. China’s Anti-Corruption Campaign and Firm-Level Transparency (SSRN Scholarly Paper No. The outcome is the change in corporate charitable donations. Political risk is the risk an investment's returns could suffer as a result of political changes or instability in a country. *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. 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). Recent evidence (for example, Pastor […] The first is the total number of convicted government officials. Academy of Management Journal, 54(6), 1159–1181. The objective part, or the Knightian uncertainty (Knight, 1921), is that whether the actors on the supply side of political markets (i.e. The common good can only be obtained through consensus, and moral uncertainty directly supports this necessary function of the political process. The campaign was launched soon after President Xi took office on November 15, 2012. https://doi.org/10.5465/amj.2016.0543, Jia, N., Shi, J., & Wang, Y. In addition, the policy intentions and policy outcomes are often misaligned. “Achieved political connections indicate more of an ongoing exchange relationship between business elites (and their organizations) and the government” (Zhang et al., 2016:1311). 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. Incomplete information, transaction cost and uncertainty. 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. 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. Institutions, institutional change, and economic performance. Does Economic policy and political uncertainty effect stock market performance and firms’ investment. 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 2012 Chinese anticorruption campaign provides a unique laboratory for this study. Management Science, 61(8), 1989–2011. We suggest that when faced with an uncontrollable jump in political market uncertainty, firms are likely to postpone their political investments. ID 3092504). Organization Science, 25(1), 127–148. If the uncertainty is uncontrollable (i.e. With two leadin… https://doi.org/10.5465/amj.2009.0548, Werner, T. (2015). 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 discussed earlier the potential bias of using count information as a proxy for PMU (not all high-risk governmental officials were convicted). Table 1. 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. Sudden increases in uncertainty lead to substantial consequences in firms’ strategic decisions. 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). Disclaimer: This work has been submitted by a student. Cambridge; New York: Cambridge University Press. https://doi.org/10.1177/0951692890002004001. Periods of political uncertainty in Ukraine have affected the pace of change. That is to say that when outcomes are fully known in advance, decisions can be optimized to minimize losses. 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. 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. https://doi.org/10.2307/258892, Holburn Guy L. F., & Vanden Bergh Richard G. (2013). Political instability is defined as the propensity of a change in the executive power, either by constitutional or unconstitutional means. To test our prediction, we use an unconventional proxy for corporate political investment: corporate charitable donations. The nature of the process is self-interested exchanges between the actors (voters, political parties, social groups, firms, etc.). For one thing, there might be considerable noise in the actual corruption crackdown process. Since the outcomes of exchange in authoritarian regimes are relationship based and person-specific, how firms donate is influenced by who are in office. Journal of Economics & Management Strategy, 10(1), 7–45. Rivalry on the supply side, therefore, is at most factional fights between groups within the party. Government officials almost have absolute power over firms. 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… Therefore, we try 2011 and 2013 as alternative cutoff time points. |)��{ xW7%���g3. Cambridge, UK ; New York: Cambridge University Press. Firms contribute to local GDP growth. Administrative Science Quarterly, 62(1), 67–104. Consequently, the number or the average rank of convicted officials in a year may not indicate the actual PMU in that year. Government official board member. This study contributes to the corporate political activity literature and the political markets literature. This cross-region spillover would make the observed treatment dosage to be smaller than what they should be, creating another attenuation bias. (2017). We log-transform the amount of charitable donation for cases with positive donations. In authoritarian regimes going through economic reforms, firms rely on connections to officials to navigate policy uncertainty (Haveman et al., 2017). Most research is limited to studying the asset pri… Firm profitability and slack resources may affect the firm’s ability to invest in politics. Collapsing time information into “before” and “after” alleviates the problem of 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. The uncertainty associated with the crackdown of a top provincial official (e.g. The political appointments creates channels for business leaders to “negotiate” terms with the government. It also consists of demanders of public policy – voters, firms, interest groups, etc. In the UK, the recent increase in political and regulatory uncertainty is affecting valuations of regulated utilities (for example, National Grid). A total number of nine provincial rank officials were removed for corruption. 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. 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. endobj Some are just officials of bottom-level administrative units (counties and towns). Using the count/average rank of convicted officials as proxies for political market uncertainty may risk significant measurement problems, however. Regional characteristics are obtained from the National Bureau of Statistics of China (NBSC). To avoid the problem, we control for the GDP per capita. 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). Randomness and uncertainty play increasingly greater roles in determining business success, largely because of rapidly evolving social networks. Hence the power structure is highly asymmetric. Notably, Shanxi became the worst “disaster zone” affected. Our second hypothesis concerns the purity in the purpose of the political investments. Strategic Management Journal, 39(1), 193–216. Research on corporate political strategy has provided rich insights into how firms use political strategy to mitigate undesirable consequences of regulatory uncertainty (e.g. Nevertheless, the attenuation bias arising from measurement problems makes us less likely to make the Type I error (false positive). One important contribution of the political markets perspective is the notion of exchange, which becomes the foundation of corporate political strategy analysis. β3is the moderating effect of achieved political ties on the main effect. Knight, F. H. (2014). Political uncertainty has become prominent not only in Europe but also in the United States. Different interest groups often have conflicting interests. ;˦����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��� Political risks come in different flavors; there are several different ways in which a political risk can appear. We control for firm size and measure it as the logarithm of revenue. Political strategies in authoritarian regimes. In the DD model, treatment PMU is a continuous variable. We use achieved political affiliations (APA) as a proxy for this variable. Surprisingly, marketization progress and creation of formal institutions do not make political embeddedness any less important for firms in authoritarian regimes. Third, there is uncertainty in the enforcement of “contracts,” even if they are just relational. How Much Should We Trust Differences-in-Differences Estimates? Mobilization in the Internet Age: Internet Activism and Corporate Response. The first question North (1990) asks is: how do interest groups know their interests? regulatory uncertainty). (2013). Registered Data Controller No: Z1821391. Instead, firms develop political ties and goodwill with governments. In this study, we analyze the effect of uncertainty in political markets on corporate political activity. (2005). Cross-regional variations in political market uncertainty are utilized to identify the effect of political market uncertainty in a difference-in-difference (DD) model. 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. In general much of it boils down to the factional power struggle for control of the governing ANC. (2017). 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). Research on corporate political strategy in China often study observable outcomes such as government official board membership (e.g. Fourth, other studies, for example, Huang et al. In this paper, we study political uncertainty associated with national elections (see Bialkowski et al., 2008; Unfortunately, there is no direct measure for uncertainty. https://doi.org/10.1002/smj.2697, Luo, X. R., Wang, D., & Zhang, J. 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. This paper examines the effect of economic policy and political uncertainty and its components on stock market performance and firm’s investment in United Kingdom and United States. β1is the difference-in-difference estimate of the effect of political market uncertainty on corporate political investment. 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. Exchange in political markets are essentially trading for future commitments. 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- Journal of Econometrics, 32(3), 385–397. Including more control variables in the model may increase or reduce the omitted variable bias. ID 2779429). 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. The external control of organizations: a resource dependence perspective. For instance, in many cities, the ridesharing company Uber fought to gain regulatory approval of operating in the cities. No legitimate activists. (2015), have considered international crises as a source of political uncertainty, this may not provide a clear understating of the phenomenon in sharp declines in reaction to news); an increase in share price volatility; In the meantime, Uber’s competitors—the traditional taxi firms—fought to persuade policy makers to ban ridesharing services.     political market uncertainty (PMU). For the regression using annual data, we cluster standard errors by region, hence allowing for serial correlation in treatments over time. We develop a new method to measure economic policy uncertainty and test its dynamic relationship with output, investment, and employment. Second, transaction cost is high. Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence (SSRN Scholarly Paper No. The political markets framework is widely in studies on corporate political strategy. Nevertheless, less attention has been paid to uncertainty in political markets per se. We use the 2012 values to proxy for their actual values throughout the observation period. Again this information could be obtained by local firms. 2016; Wang and Qian, 2011; Dickson, 2003; Jia et al., 2018). 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. Those evidence suggest that firms invest in political markets calculatedly, and supplier-side rivalry is certainly one dimension they carefully consider. Wiggling room exists for government officials to selectively impose regulatory burdens on firms, or even abuse the entrusted power to extort firms. The number of groups (31) is large enough for a DD model to generate reliable causal inferences (Bertrand, Duflo and Mullainathan, 2002). 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. 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). Besides, firms sometimes voluntarily contribute financial resources to local social projects. It exists not only in the firm’s market environment (e.g. Aside from GDP per capita and NGO development, the marketization level of a province may also have a confounding effect on corporate philanthropy. In our context, we use the number of convicted government officials in each province as a proxy for political market uncertainty. There is no sharp cut-off point. how uncertainty affects both the level and the timing of R&D investment. governor or mayor) is certainty different from that associated with the crackdown of an administer in a town. Those factors combined explain the market failure of political markets. https://doi.org/10.1287/orsc.2013.0837. Firms are not buying policy, but access to resources, information, lighter regulatory burden and immunity from political misappropriation. As we mentioned earlier, one major challenge of this study is measuring PMU with something we can observe. (1986). In exchange, the business leaders provide financial resources to social welfare projects and information to governments. The campaign has generated a political earthquake in several provinces. In contrast, some provinces experienced relatively moderate impact of the campaign. The Central Commission for Discipline Inspection (CCDI) keeps a record of indicted high-level officials on its website. For instance, provinces with higher PMU might have lower GDP per capita. Report. Firm Resources and Sustained Competitive Advantage. North, D. C. (1990a). https://doi.org/10.3386/w8841, Bonardi, J.-P., Hillman, A. J., & Keim, G. D. (2005). From the resource dependency perspective (Pfeffer & Salancik, 1978), it is critical for firms to develop political access to gain access to valuable resources. The CDI has clear classification of the rank of the convicted officials. 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). Regional characteristics (GDP per capita, number of NGOs, marketization level, population). more incomplete contracts), and there is a greater focus on long-run rather than short-run benefits. 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. Since the onset of the anticorruption campaign, the Central Leading Group for Inspection Work (the anticorruption execution arm of the Central Committee of the Communist Party of China) has dispatched inspection teams to provinces, central government agencies and state-owned enterprises. Ang, Y. Y., & Jia, N. (2014). Retrieved from https://papers.ssrn.com/abstract=3095686, Bertrand, M., Duflo, E., & Mullainathan, S. (2002). (177). 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 For example, an economic downturn could generate a great deal of political uncertainty. https://doi.org/10.1287/mnsc.2014.2092, Wernerfelt, B., & Karnani, A. Others have modeled the effects of political uncertainty in a macroeconomic context. We will just use information from the CDI. https://doi.org/10.1086/527495, Griffin, J. M., Liu, C., & Shu, T. (2018). Political Markets and Regulatory Uncertainty: Insights and Implications for Integrated Strategy. Political markets are markets where firms exchange valuable political resources (votes, money, information, etc.) Free resources to assist you with your university studies! Firms’ political strategies are tailored to suit the specific leaders they try to access. 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 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. Company Registration No: 4964706. the face of uncertainty. Next, we consider alternative starting time and observation window. Risk vs Uncertainty Without uncertainty there is no risk. 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. Retrieved from https://papers.ssrn.com/abstract=2899403, Jia, N., Huang, K. G.-L., & Zhang, C. M. (2018). First, information is imperfect, costly and asymmetric. imf.org. The website provides information on both investigated government officials and investigated managers. The best we can do is to use observable proxies to observe uncertainty indirectly. ABSTRACT. On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms. Another important firm-level control variable is whether the firm had government officials on the board of directors. For simplicity, we follow prior research (Fisman and Miguel, 2007) and treat all time-varying control variables as if they were constant. Dickson, B. J. The second measurement problem arises from the inaccuracy of the information from the CDI website. Dissertation The Academy of Management Review, 30(2), 397–413. 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. Registered office: Venture House, Cross Street, Arnold, Nottingham, Nottinghamshire, NG5 7PJ. We consider three candidates for the count approach. (2017). We code the variable as “1” if the firm had any government official board members in 2012. 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. Panel data for multiple years are needed. endobj The coerced leaving of government official board members may therefore have a negative impact on corporate philanthropy. (2003). We're here to answer any questions you have about our services. 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. ����z�i��(+C��_� �~�%�P�p�i5yE��.Y_�qs%��#��I6@y��D�"���"��of0��w�%/�ru����c!Ǻ"��W֕E�B|G�(c�Q A political reshuffle generates uncertainty on the supply side. https://doi.org/10.1002/smj.4250080209, Zhang, J., Marquis, C., & Qiao, K. (2016). In terms of social welfare projects, different leaders often have different preferences for which projects to pursue. Adapting corporate strategy to extreme political uncertainty first requires evaluation of the nature and the scope of uncertainty. There are no voters. https://doi.org/10.1177/014920639101700108, Barney, J. 2, s$]�3X'�Q�TO�|��.�ŊiifF��?�D>]lh����墼Ƈ��˙�. 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. Collapsing time information into two periods helps us avoid the problem. Politically-motivated corporate philanthropy is not unique to firms operating in authoritarian regimes. Moulton, B. R. (1986). The Interdependence of Public and Private Stakeholder Influence: A Study of Political Patronage and Corporate Philanthropy in China (SSRN Scholarly Paper No. 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. 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). Strategy is essentially about investing for the future. 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. In addition, due to weak rule of law, policy making and regulatory execution in authoritarian regimes can sometimes be quite arbitrary. (SSRN Scholarly Paper No. Government officials are buying things that polish their resumes – GDP growth, social welfare improvement, etc. This leads to our second hypothesis: H2. https://doi.org/10.1080/07388940500339183. Scholars use the framework to analyze firms’ tendencies to participate in political markets (e.g. Several firm-level control variables are worthy of our special attention.The first is Investigated firm. https://doi.org/10.1111/j.1430-9134.2001.00007.x, Bertrand, M., Bombardini, M., Fisman, R. J., & Trebbi, F. (2018). period of high uncertainty as to economic and regulatory reforms came into being, which could affect the listed firms. For instance, Paik, Kang and Seamans (2018) investigate the determinants of Uber being banned in U.S. cities and find that the less political competition (measured by mayor tenure) there is in a city, the greater the likelihood of Uber being banned in the city. Several top national leaders were targeted, including former military leaders Xu Caihou and Guo Boxiong and former Politburo Standing Committee (PSC) member Zhou Yongkang. 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. Firms use charitable donations as tool for developing goodwill and trust with local governments, who have critical stakes in the firms’ local operations. The empirical context of this study is an authoritarian regime that has recently been through a major political reshuffle—China. If the reason of a CEO dismissal was related to anticorruption, we code the firm as investigated firm. All work is written to order. Haveman et al. Regardless of the actual effect of the campaign on corruption reduction, it has certainly disturbed the political market of China and generated considerable uncertainty. When faced with a sudden increase in uncertainty on the supply-side of political markets, firms postpone reduce political investment. Fan, G., Wang, X., & Zhu, H. 2011. Paik, Y., Kang, S., & Seamans, R. (2018). Retrieved from https://papers.ssrn.com/abstract=2925077, Peng, M. W. (2003). To get the standard error right, we cluster them at the province level. We stress the role of uncertainty, which is overlooked in the previous literature. Random group effects and the precision of regression estimates. β3. We deal with the problem by controlling for the number of NGOs in each province. The government remains the most influential player in the economy and a powerful stakeholder of firms. Government officials rely on GDP growth for promotions. 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. A Study of Corporate Charitable Donations of Chinese Firms. (Working Paper No. In the robustness check section, we try an alternative measure of PMU: first investigated provinces. 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. This problem arises from difficulties in measuring the rights being traded and difficulties in enforcing the exchange of rights. ID 3095686). The Journal of Politics, 76(2), 318–332. Corruption, Norms, and Legal Enforcement: Evidence from Diplomatic Parking Tickets. 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. Tourists looking to relax will often rule out destinations with any hint of instability. Research on corporate philanthropy suggest that there are strong political motivations behind corporate charitable donations in China (Zhang et al. Competitive strategy under uncertainty. Political uncertainty has featured prominently in the economic landscape of recent years. After identifying the events, we search the reason why the CEOs were dismissed. Initiated in December 2012 by the then newly-elected President Xi Jinping, the campaign is considered the most influential anticorruption movement in modern China. B. Some corporate leaders were investigated and convicted to be corrupt. Corporate Social Responsibility Reporting in China: Symbol or Substance? Rochester, NY: Social Science Research Network. Problems with standard errors can also arise from assigning group-level treatment to individual observations (Moulton, 1986). Nevertheless, in authoritarian regimes such as China, politically-motivated corporate philanthropy is particularly salient (Zhang, Marquis and Qiao, 2016). Alternatively, firms may choose to spread out its resources and mitigate risk through strategy diversification. International Variation in the Business-Government Interface: Institutional and Organizational Considerations. This paper investigates the relationship between the turnover of prefecture-city officials and the inherent risk faced by local firms in China. 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. Copyright © 2003 - 2020 - All Answers Ltd is a company registered in England and Wales. https://doi.org/10.5465/AMJ.2006.23478676. Oxford, England: Macmillan. exogenous) and there is little first-mover advantage, waiting is often a more desirable strategy. What promotes collaboration between them, however, is economic incentive (Firms can only win by collaborating with governments, not by fighting governments). Finally, we address the potential problem of having too many control variables. 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. Administrative behavior; a study of decision-making processes in administrative organization. Much more (tens of thousands) of lower level officials were indicated. The coerced departure of these government official board members is likely to have impacted corporate philanthropy. 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. The exchange is much more relational than contractual (i.e. Rochester, NY: Social Science Research Network. As discussed below, this is evident from: more frequent political and regulatory news triggering falls in share prices (i.e. When uncertainty suddenly increases, however, there is no time for new institutions to emerge to counteract its effect. Political Market Uncertainty and Corporate Political Investments: An Examination of Corporate Charitable Donations around a Political Reshuffle. We include region-level and firm-level variables that we suspect to affect both treatment status and outcome. 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). Unanticipated policy outcomes often happen, even if the ex-ante intentions are there. 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. The effect of global political uncertainty on equity prices increases with a country’s equity market exposure to foreign investors. <> Whose Call to Answer: Institutional Complexity and Firms’ CSR Reporting. Our second hypothesis concerns the moderating effect of political investment purity. Beijing, China: Economics Science Press. 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. edition). London: Methuen & Co., Ltd. Wang, H., & Qian, C. (2011). https://doi.org/10.1287/orsc.2016.1084. We handle time information in two ways. 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). Political uncertainty makes it difficult to value assets in the future, since unexpected policy decisions may quickly change the valuation of a currency. Rochester, NY: Social Science Research Network. a sudden, grand, and rapid change in the composition of men holding offices) and its possible impact on trade in political markets. The treatments in this study are (1) being “assigned” high/low PMU and (2) had achieved political affiliations. endobj Do Political Connections Buffer Firms from or Bind Firms to the Government? We also include some variables that do not interfere causal inference to soak up residual variance. 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. The government also closely control the nonprofit sector and it is almost impossible for private charities to operate without government backing. New York: Harper & Row. Political Markets in Authoritarian Regimes. One way is to keep the information of each year. Academy of Management Review, 28(2), 275–296. Change is the theme of this study. 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.

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