For instance, it is common for listed Chinese firms to have government officials on their boards of directors. If the reason of a CEO dismissal was related to anticorruption, we code the firm as investigated firm. The first is the total number of convicted government officials. Nevertheless, the attenuation bias arising from measurement problems makes us less likely to make the Type I error (false positive). Fan, G., Wang, X., & Zhu, H. 2011. Government officials rely on GDP growth for promotions. Unfortunately, there is no direct measure for uncertainty. The Academy of Management Review, 30(2), 397â413. The other is to collapse time into two periods: before 2012 (including 2012) and after 2012. Unlike political markets in democracies, the political markets in authoritarian regimes consists of a quite different set of participants. 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. In the DD model, treatment PMU is a continuous variable. 2, s$]�3X'�Q�TO�|��.�ŊiifF��?�D>]lh����墼Ƈ��˙�. Retrieved from https://papers.ssrn.com/abstract=3095686, Bertrand, M., Duflo, E., & Mullainathan, S. (2002). The Wealth of Nations. Second, transaction cost is high. By usingthe same Such information may spillover to firms. Risk Uncertainty and Profit. In the robustness check section, we try an alternative measure of PMU: first investigated provinces. Our second hypothesis concerns the purity in the purpose of the political investments. https://doi.org/10.5465/amj.2014.0847, Luo, X. R., Zhang, J., & Marquis, C. (2016). Another âdisaster areaâ is Guangdong, where several of the top leaders were dismissed for corruption. Ang, Y. Y., & Jia, N. (2014). In another model, we include firm-fixed effects (, Djrt=Â Î±r+Â Î³tÂ +Ïj+Â ÏâXjrt+Â Î²1âPMUrtÂ +Î²2âPIPjt+Î²3âPMUrtâPIPjt+Â Îµjrt. 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. Tens of thousands of lower-level officials were investigated and convicted. Additionally, our main model has an observation period of ten years (five years before and five years after). Ang and Jia (2014) investigate how political connectedness affect the use of courts to resolve disputes for firms in China. Corporate philanthropic contributions are especially appreciated when local governments have limited resources of their own (Dickson, 2003). https://doi.org/10.1177/0951692890002004001. We're here to answer any questions you have about our services. https://doi.org/10.5465/amj.2015.0693, Marquis, C., & Qian, C. (2013). Strategic Factor Markets: Expectations, Luck, and Business Strategy. 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. stream (Working Paper No. We consider three candidates for the count approach. For example, some leaders aspire to reduce poverty, others aspire to reduce environmental pollution. Periods of political uncertainty in Ukraine have affected the pace of change. Government officials are buying things that polish their resumes â GDP growth, social welfare improvement, etc. 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. The Journal of Politics, 76(2), 318â332. Management Science, 32(10), 1231â1241. 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 campaign not only affected the political world of China but also the corporate world. https://doi.org/10.1002/smj.2152, Clarke, K. A. The treatments in this study are (1) being âassignedâ high/low PMU and (2) had achieved political affiliations. (2016), we code this variable as one if the chairman of the firm serves as a delegate to the national- or provincial-level Peopleâs Congress (PC) or the national- or provincial-level Chinese Peopleâs Political Consultative Conference (CPPCC) and has no other government affiliations. governor or mayor) is certainty different from that associated with the crackdown of an administer in a town. Collapsing time information into two periods helps us avoid the problem. Academy of Management Journal. As of May, 2016, more than 150 high-level government officials were cracked down. We control for firm size and measure it as the logarithm of revenue. (Buchanan and Tullock 1962; North, 1990). Mobilization in the Internet Age: Internet Activism and Corporate Response. Journal of Management, 17(1), 99â120. Risk vs Uncertainty Without uncertainty there is no risk. Firm profitability and slack resources may affect the firmâs ability to invest in politics. Haveman et al., 2017; Bonardi, Holburn and Vanden Bergh, 2006). 9th Dec 2019 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. There are no voters. Â Â Â Our main dependent variable is Corporate charitable donations. Those factors combined explain the market failure of political markets. As discussed below, this is evident from: more frequent political and regulatory news triggering falls in share prices (i.e. The empirical context of this study is an authoritarian regime that has recently been through a major political reshuffleâChina. The 2012 Chinese anticorruption campaign provides a unique laboratory for this study. Notably, Shanxi became the worst âdisaster zoneâ affected. We will just use information from the CDI. regulatory uncertainty). On the demand side, firms compete with other firms or interest groups for favorable policy outcomes. What promotes collaboration between them, however, is economic incentive (Firms can only win by collaborating with governments, not by fighting governments). As a result, the government seeks to maintain tight social control by co-opting with business leaders. 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. Including more control variables in the model may increase or reduce the omitted variable bias. 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. We deal with the problem by controlling for the number of NGOs in each province. Using the count/average rank of convicted officials as proxies for political market uncertainty may risk significant measurement problems, however. That happens when uncertainty stays at a relatively stable level. (2017). Do Political Connections Buffer Firms from or Bind Firms to the Government? Red Capitalists in China: The Party, Private Entrepreneurs, and Prospects for Political Change. Casual observation suggests that political events in one country can affect asset markets in another. A total number of nine provincial rank officials were removed for corruption. Research on corporate political strategy in China often study observable outcomes such as government official board membership (e.g. 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… 4 0 obj Political Markets and Regulatory Uncertainty: Insights and Implications for Integrated Strategy. To avoid the problem, we control for the GDP per capita. Regional characteristics (GDP per capita, number of NGOs, marketization level, population). 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. 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. 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. endobj Nevertheless, in authoritarian regimes such as China, politically-motivated corporate philanthropy is particularly salient (Zhang, Marquis and Qiao, 2016). Firms contribute to local GDP growth. https://doi.org/10.1287/orsc.2013.0837. International Variation in the Business-Government Interface: Institutional and Organizational Considerations. Political uncertainty has featured prominently in the economic landscape of recent years. 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. 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. Academy of Management Journal, 60(1), 321â344. (SSRN Scholarly Paper No. Regardless of the actual effect of the campaign on corruption reduction, it has certainly disturbed the political market of China and generated considerable uncertainty. To calculate average rank, we code the rank of central government officials and the âfirst-handsâ of provincial and municipal government officials as 5, other provincial and municipal government officials as 3, and the rest as 1. Political embeddedness is therefore critical for firms in authoritarian regimes (Marquis and Qian, 2013; Dickson, 2003). Even two members of the Central Committee of CCP were removed, which had never happened before in history. In exchange, the business leaders provide financial resources to social welfare projects and information to governments. For robustness checks, we also try alternative specifications and alternative measures of the main variables. 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. All work is written to order. A high probability of a change of government implies uncertai… For the regression using annual data, we cluster standard errors by region, hence allowing for serial correlation in treatments over time. (2005). endobj Giga-fren. Since there is no election or voting, firms in authoritarian regimes cannot gain political access by making campaign contributions or lobbying. 1 0 obj Management Science, 61(8), 1989â2011. Research on corporate philanthropy suggest that there are strong political motivations behind corporate charitable donations in China (Zhang et al. 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 https://doi.org/10.2307/258892, Holburn Guy L. F., & Vanden Bergh Richard G. (2013). How PMU is operationalized is critical to the credibility of the findings of this study. Rather than being determined by ideologies of government elites or the âpublic interest,â policy outcomes are driven by competition between interest groups. 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. Firmsâ political strategies are tailored to suit the specific leaders they try to access. 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. We examine political market uncertainty in an authoritarian regime â China, where a recent anticorruption campaign has generated considerable turbulences in regional political markets. Cross-regional variations in political market uncertainty are utilized to identify the effect of political market uncertainty in a difference-in-difference (DD) model. A sudden jump in political market uncertainty makes the return of the investments less certain. 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). EMPIRICAL SETTING The empirical context of this study is an authoritarian regime that has recently been through a major political reshuffle—China. No legitimate activists. Additionally, we discuss the rights exchanged and the types of political strategies, which are quite different from those used in democracies. The political uncertainty surrounded by the turnover of government officials has a major impact on local economies and local firms. Future studies can investigate the determinants of a firmâs capability in navigating political market uncertainty, or the heterogenous responses among firms when faced with such uncertainty. a sudden, grand, and rapid change in the composition of men holding offices) and its possible impact on trade in political markets. Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector. The anticorruption campaign not only shocked the public realm, but also reached into the corporate world. London: Methuen & Co., Ltd. Wang, H., & Qian, C. (2011). The analysis has so far been primarily focused on the supply- and demand-side rivalries. The campaign was launched soon after President Xi took office on November 15, 2012. Summary of Variables, Measures and Data Sources. The politically-motivated proportion of charitable donations of firms with achieved political affiliations is likely to be higher than firms without such affiliations. Today’s highly polarized political climate and pervasive uncertainty about future policy are exacting an economic price. The following are illustrative examples of uncertainty avoidance. Hence the power structure is highly asymmetric. Different government leaders have different policy agendas and resource demands. If the uncertainty is uncontrollable (i.e. Rochester, NY: Social Science Research Network. For cases with no donation, we code the variable as zero. For instance, in many cities, the ridesharing company Uber fought to gain regulatory approval of operating in the cities. <>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/Annots[ 27 0 R] /MediaBox[ 0 0 595.32 841.92] /Contents 4 0 R/Group<>/Tabs/S>> Some investigated government official are top national/provincial leaders in the Party. This is not an example of the work produced by our Dissertation Writing Service. Moulton, B. R. (1986). The external control of organizations: a resource dependence perspective. We find that, since 2008, economic policy uncertainty in the United States has been at a level approximately two times its long run average. Ang and Jia, 2014). sharp declines in reaction to news); an increase in share price volatility; Retrieved from https://papers.ssrn.com/abstract=2925077, Peng, M. W. (2003). The outcome is the change in corporate charitable donations. Political instability affects growth because it increases policy uncertainty, which has negative effects on productive economic decisions such as investment and saving. Organization Science, 25(1), 127â148. 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. It is costly to conduct repeated surveys through multiple years to generate panel data. In October, 2013, the CPC passed âRule 18â which forbids government officials to serve as board members of listed firms. Other firm characteristics may also affect both the assignment of PMU, achieved political affiliation and the change in corporate philanthropic donations. According to the political markets framework, political markets consist of suppliers of public policy such as the executive, legislators, regulators and courts. how uncertainty affects both the level and the timing of R&D investment. Free resources to assist you with your university studies! As Clarke (2005) shows, the omitted variable bias may or may not be mitigated by including a subset of relevant control variables. Empirical evidence are largely corroborative. The prosperity of the market economy is accompanied by the by-products of increased income inequality, which threatens social stability. 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). A daylong conference bearing evidence of that fact concluded with a panel of eminent experts who provided historical context and guidance on how policy uncertainty … *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. In general, less marketized regions tend to have higher levels of corruption, therefore may have higher PMU in the event of an anticorruption campaign. Political risks come in different flavors; there are several different ways in which a political risk can appear. The Attractiveness of Political Markets: Implications for Firm Strategy. We code the variable as â1â if any of the firmâs top leaders was investigated. For one thing, there might be considerable noise in the actual corruption crackdown process. 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. Variables that affect both the treatment status and the outcome can interfere our causal inference. A� D6ݏ�$�'�n���x�vD�Q��H'��=d In terms of social welfare projects, different leaders often have different preferences for which projects to pursue. We handle time information in two ways. https://doi.org/10.1177/014920639101700108, Barney, J. https://doi.org/10.1287/mnsc.2014.2092, Wernerfelt, B., & Karnani, A. Firms are not buying policy, but access to resources, information, lighter regulatory burden and immunity from political misappropriation. 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