Business-government Relations Research Articles

Heterogeneous political connections and corporate overinvestment: evidence from Malaysian firms

PurposeThis paper examines the relationship between heterogeneous political connections and corporate overinvestment.Design/methodology/approachBased on a comprehensive Malaysian dataset of 834 publicly listed companies from 2000 to 2022, the authors employed multivariate ordinary least squares regression to test the relationship.FindingsDespite different types of political connections, the findings demonstrate a positive relationship between political connections and corporate overinvestment. In particular, the association is more profound in government-linked companies (GLCs) but weaker in firms that developed political ties through family members of ruling elites. Further analysis reveals that the “helping hand” effect is only observed in GLCs and firms with politically connected directors and businessmen, whereas the “grabbing hand” effect is observed among firms connected through board, businessmen, and family ties. Moreover, the relationship is more persistent among firms with politically connected directors and businessmen around the regime change.Research limitations/implicationsRegardless of the types of political connections, the findings show that politically connected firms tend to engage in rent-seeking through political patronage networks and high levels of government interference in resource allocation. Therefore, a more sophisticated monitoring system should be developed within the political patronage networks to reduce the likelihood of different types of political-business collusion. In terms of research limitations, the research design does not consider the influence of financial constraints and management efficiency. Future research could explore these facets to comprehensively understand the dynamics between political connections and corporate investment decisions.Practical implicationsThe evidence informs market participants about the relationship between heterogeneous political connections and corporate overinvestment, reinforcing previous findings that crony capitalism, political patronage, agency problems, and weak governance are well-entrenched in Malaysia’s emerging economy. The government should acknowledge these concerns by enacting anti-corruption campaigns and promoting a fair business environment. In the meantime, policymakers might redesign regulations and revise corporate governance frameworks to substantially reduce the value of political connections, thereby diminishing the bargaining power of politicians.Social implicationsAs corporate investment efficiency has a considerable impact on firm value, investment decisions that enhance firm value will increase share price and maximise shareholder value. Conversely, firms may damage shareholder value if they overinvest or undertake projects that do not yield sufficient. Hence, the findings of this study may assist investors in making more informed judgements, particularly by understanding different types of business-government relations, as political connections are one of the determinants of corporate overinvestment.Originality/valueThis study reveals that the degree to which overinvestment issues manifest within firms is influenced by the nature of the political connections those firms possess. This indicates that politically connected firms should not be regarded as a homogenous group of firms.

Open government data and resource allocation efficiency: evidence from China

ABSTRACT Data are among the most valuable resources. This paper, utilizing the China Tax Survey Database from 2009 to 2016, investigates the impact of Open Government Data (hereafter, OGD) on the efficiency of resource allocation among firms within the Chinese context. The findings indicate that OGD significantly reduces the deviation in firms’ factor inputs, thereby enhancing the efficiency of resource allocation. This is primarily achieved through the optimization of government-business relationships, the reduction of rent-seeking costs, and the decrease in information asymmetry. Given the inclusive nature of OGD, it has a more pronounced positive impact on disadvantaged firms and cities. Furthermore, while OGD directly improves representative firm’s TFP, its greater economic impact lies in elevating aggregate TFP by enhancing resource allocation efficiency. In the current global economy, highly dependent on data-driven processes, the conclusions of this paper provide a novel perspective on the role of OGD in enhancing productivity. This has significant implications for accelerating the implementation of open data policies and enhancing economic efficiency.

Canadian Nickel for Nazi Germany – How Government-Business Relationships Affected British Blockade Strategies in the 1930s

This article presents a case study of the Canadian-based International Nickel Company (INCO) and its efforts to develop the German market in the 1930s, contributing to Nazi-German war preparations and hampering British blockade strategies. It examines government-business relations in blockade planning and argues that conflicts of interest and information asymmetries between state and business actors affect blockade preparations. In times of peace, trade flows are shaped mainly by private actors. They often have an information advantage, but are primarily pursuing their business interests, which can result in either alignment or conflicts of interest. Understanding the government-business relations in blockades is key to understanding blockades and economic warfare in general. Previous research has found evidence of alignment of interests, such as companies using state autarky policies in Nazi Germany and Fascist Italy to develop new markets. Similarly, companies employed the strategy of an independent British Empire in strategic raw materials to develop markets. However, government-business relations in the context of British blockade planning have not yet been thoroughly investigated. Drawing on private and public archival material from Britain and Germany, this case study examines the motives and strategies of INCO, British and German war planners.

Governments and Markets in the Digital Age

Abstract The academic literature has revamped its interest in economic statecraft, geoeconomics, geopoliticization of trade and technology sectors, and in the role of value chains as vectors for exerting control over critical technologies. However, there has been less reflection on state-market relations in the production of technological innovation and on the evolution of government business relations. Four recent books address these two important issues from different angles. Mazzucato and Mallaby’s books focus on the right mix of state and market needed to stimulate technological innovation, and they do so from opposite perspectives. Chen and Ripley’s books look, respectively, at the rise of Tencent as one of China’s major big tech companies and the rise of SpaceX as a key private player in the traditionally state-led US space market. These two books are therefore of interest to gauge the evolving relations between government and private businesses in two key areas of current geopolitical competition, the digital and the space sectors. The aim of this review essay is not only to briefly summarize the content of these books and their strengths and weaknesses, but also to use them as a starting point to reflect on the mix of state and market in the production of innovation, and on government-businesses relations in digital markets.

Chinese Firms’ Corporate Political Capabilities in Overseas Markets

Multinational enterprise managers increasingly face the challenge of maintaining their firms’ international operations under geopolitical uncertainty. In response, MNEs need to build firm-specific organisational capabilities to address geopolitical challenges and manage the conflicting interests between the host and home countries. While corporate political capabilities can vary at the country level, firms differ in their relationships with the home-country government. In my dissertation research, I investigated the role of the home-country government in shaping firms’ corporate political capabilities in overseas markets. This research provides new frameworks and tools for international business practitioners to manage business-government relations at home and abroad.

Government–business relationship and strategic transformation of enterprises: Evidence from China

This research uses data from private firms listed on China's A-share market (2016–2020), investigating the positive impact of strong regional government-business relations on firms' strategic transformations. Results indicate a positive correlation between healthier government-business relationships. Path testing reveals that the relationship primarily enhance the level of strategic transformation in private enterprises by reducing financing constraints within enterprises. This effect is stronger in areas with higher marketization levels and where management has significant shareholding. The study enriches understanding of the economic benefits of healthy government-business relations and offers empirical insights for enhancing strategic transformations in private enterprises.

Impact of economic policy uncertainty on audit fees: Evidence from Chinese listed companies

High economic policy uncertainty in China amplifies operational risks and managerial pressure for businesses while driving the demand for independent audits. However, previous studies have paid limited attention to the impact of economic policy uncertainty on audit fees. This study aims to examine the impact of economic policy uncertainty on audit fees and to test whether the internal control quality will moderate this association at the firm level. This study employs the economic policy uncertainty index to measure uncertainty. The paper examines 3,469 Chinese A-share listed companies from 2007 to 2020, using STATA 17 for fixed-effects regression on panel data. The results show a robust positive association between economic policy uncertainty and audit fees (β = 0.0302, p < 0.001). However, this association is weaker for companies with better internal control quality (β = –0.0229, p < 0.001), suggesting that effective internal controls can mitigate the impact of economic policy uncertainty on audit fees. Furthermore, the findings indicate that this positive association is weaker for state-owned companies compared to non-state-owned companies (β = –0.0170, p < 0.001). At the same time, the study does not establish a significant difference in the positive association between TOP 10 and non-TOP 10 accounting firms. This study examines the adverse effects of economic policy uncertainty from the perspective of audit fees. The results have implications for stakeholders, including the need for companies to establish effective internal controls and good government-business relationships and for governments to reduce economic policy uncertainty and increase transparency in their policies.

INSTRUMENTS OF STATE SUPPORT FOR SHIPBUILDING: GLOBAL EXPERIENCE

The article explores the challenges stemming from the authors' perspective on Ukraine's future business endeavours pertaining to the exploitation of World Ocean resources. Authoritative statistical data analysis from international organizations has shown that many coastal countries are making full use of their advantageous geographical position to address critical challenges such as food provision (by means of fish and seafood industrial production, algae cultivation, and mariculture) and the stabilization of the respective regions' social situation through job creation and maintenance. The objective focus of shipbuilding as a manufacturer of specialized equipment facilitating human labor in the harsh sea and ocean environments is presented. The business-government relations are examined through the example of prominent maritime nations, providing valuable insights.

Symbol or substance? Environmental regulations and corporate environmental actions decoupling

Our paper focuses on how firms strategically respond to environmental regulations on environmental actions. Given the greater discretion in environmental information disclosure and relaxed environmental regulations enforcement in China, we propose that firms tend to say more while do less to obtain environmental legitimacy, namely corporate environmental actions decoupling. Using a sample of 5422 Chinese firm-year observations over the period of 2012–2018, we document that stringent environmental regulations contribute to a significant inconsistency between environmental reporting and actual environmental performance. Moreover, we demonstrate that this inconsistency is exacerbated when firms possess greater bargaining power and fewer financial resources. Our paper not only advances the understanding of how firms navigate external regulations by examining the tradeoffs between symbolic and substantive actions, but also sheds light on factors influencing decoupling/greenwashing practices from the perspective of government-business relations in China, and potentially in other emerging economies.

Private Investment in Chinese Football Clubs: Political Capital and State–Business Exchanges

Business–government relations play a crucial role in China's economic development and policy implementation. Situated in an asymmetric dependency nexus, local officials court business investments to facilitate policy and boost their political careers, while under Xi Jinping private firms are increasingly incentivised to support party-state goals to gain access to political capital. In this study, we use the case of football development to show how private business actors and government officials enter reciprocal relationships based on the exchange of respective financial and political capital. Using insights from semistructured interviews with practitioners and macro-level data, such as investors’ characteristics and financial data, we explore the role of political capital in state–business exchanges, specifying the mechanisms of this interaction (motivations, forms, and perceived benefits) and three distinct investment scenarios in the case of football. Besides insights into the sector, the article contributes to the understanding of the modus operandi of private business and local government in the Chinese political economy at large.

Impact of new government–business relations on urban digital economy: Empirical evidence from China

Drawing from dynamic capability theory, we investigate how new government–business relations impact urban digital economy with mediating and moderating effect model, using panel data from 242 prefecture-level Chinese cities over 2017–2019. We find that building new government-business relations promote urban digital economy, with urban service capability playing a mediating role. We also find that digital infrastructure strengthens the impact of urban service capacity on urban digital economy. These findings are robust and more significant in eastern and larger cities. Our study provides new evidence on exploring mechanism and conditions by which new government-business relations influence urban digital economy.

“An Imperial Clearing House for Commercial Information and Suggestions:” The British Imperial Council of Commerce, 1911–1925

AbstractThis paper departs from the preoccupation in the literature with the pressure group activity of single chambers of commerce by examining an influential but previously neglected federated business pressure group, the British Imperial Council of Commerce (BICC). Set within interlocking dynamics of British Imperial and global history and the clamour for imperial preference, it focuses on BICC's interface with the British government and its overseas dependencies in the context and vortex of Imperial economic policy, the First World War, interimperial competition, especially Anglo–German rivalry, and the vagaries of the world political economy. This essay provides insights into the internal affairs of the BICC, business–government relations in the British Empire, and the political economy of the Empire between 1911 and 1925. It demonstrates how the BICC, focused on Imperial economic governance, navigated the conflict between the prevailing ideology of laissez faire (free trade) and the clamour for xenophobic protectionism during the First World War and its aftermath. The paper highlights the limits of business pressure group activity, and the impact of the war and its aftermath on the BICC.

Why Compete for Firms? Electoral Effects of Corporate Headquarters Relocation

AbstractWhy do local and state governments in the United States compete to attract and retain corporations in their jurisdictions even by offering generous incentives, which can jeopardize public spending on other needs? This research shows that the answer can lie in the electoral effects of headquarters (HQ) relocation. Using an original data set of interstate HQ relocation cases covered in the news media from 1995 to 2015, this research finds that interstate business location decisions affect gubernatorial election outcomes. However, empirical analyses provide evidence that voters use different attribution processes when considering HQ relocation‐in versus relocation‐out cases: HQ relocation‐out results in greater support for Republican candidates, whereas HQ relocation‐in increases support for the incumbent party. Supplementary analyses suggest that the perceptual effects and symbolic value of HQ relocation, rather than its immediate local economic effects, drive electoral outcomes. The findings have implications for electoral accountability and the political economy of business–government relationships.

The effect of corruption level in steering the business–government relations: evidence from 23 African countries

PurposeThe purpose of this paper is to investigate the effect of corruption level in steering the business–government relations (BGRs) in developing countries. It also examines the moderating effect of firm size.Design/methodology/approachUsing robust tobit and probit models, this study tests the response behavior of 9787 firms from 23 African countries to their government's policy and regulations and the direct effect of corruption control level in their response decisions. The authors also perform several other additional analyses to ensure the robustness of the findings, including change analysis, two-stage model and recursive bivariate model.FindingsThe result shows that corruption level is among the significant factors that drive BGRs exponentially. The finding points out that, there is a strong alliance of business and government in more corrupt countries. Moreover, the impact of corruption level exacerbates when the firm is bigger.Research limitations/implicationsManagers should focus more on activities that create long-term sustainable advantage. Valuable time of the senior managers should not waste on negotiating government policies to earn a short term advantages.Practical implicationsIt is evident that legal and transparent government alliances can lead to economic rent for firms. However, it is important to note that any alliance based on corruption and illegality is short-lived and ultimately detrimental to long-term prosperity. Therefore, it is crucial for firms to prioritize ethical business practices and build relationships with governments that prioritize transparency and accountability.Social implicationsGiven the detrimental impact of corruption on economic progress, it is crucial for Africa policy-makers to prioritize reforms aimed at reducing its adverse effect. By implementing ethical and transparent business practices, countries can attract more investment and promote economic growth.Originality/valueThis study contributes to the existing literature on the passive form of political connectivity/activity and to what extend corruption level affect the political activities of firms.

Government-business relations and strategic patenting: evidence from China's patent boom

PurposeThe purpose of the study is to propose a new perspective to explain how China's rapid growth in patenting is partially driven by corporate strategic patenting to influence local governments. The authors highlight the role of strategic patenting and local government-business relations in creating the gap between the patent boom and underlying technological progress in China.Design/methodology/approachThe authors investigate the relationship between local government-business relations and corporate strategic patenting behaviors, measured as a higher ratio of patent filings to patent awards, by collecting data from three successive NADS surveys of government-business relations in 292 Chinese municipalities, paired with detailed patenting and subsidy data of 3,756 publicly listed corporations obtained through text mining.FindingsThe authors find that, while R&D investment and patent subsidies do drive corporate patenting, firms in jurisdictions with lower-quality government-business relations are more likely to engage in strategic patenting. Moreover, the negative impact of government-business relations on strategic patenting is moderated by political connections, as the strategic patenting of firms without political connections is more sensitive to government-business relations. The authors further show that firms obtain significant benefits from patenting in the form of additional subsidies from local innovation and industrial policies in the years following.Social implicationsRolling back patent subsidies will reduce strategic patenting to a limited extent. The local governments in emerging markets need to increase the capacity to implement industrial policy and provide market-based opportunities for firms to access innovation inputs.Originality/valueThe authors provide an updated and fresh perspective to understand the phenomenon of China's patent boom by showing that patenting can be driven by corporate strategies to adapt to local institutions and influence government policy. The authors extend the analysis of strategic patenting to emerging markets.

Samsung in Vietnam: FDI, Business–Government Relations, Industrial Parks, and Skills Shortages

AbstractSamsung has largely shifted its electronics manufacturing out of China, and mostly to Vietnam. In that process, it has, to date, avoided local labour market (LLM) difficulties faced by its subsidiaries in industrial parks in China: in particular, pervasive skill shortages among the electronics assembly workers on whom Samsung’s manufacturing depends. Labour retention problems in China had significantly challenged its commitment to invest in necessary employee training. By contrast, Samsung’s domination of foreign direct investment (FDI) within particular Vietnamese industrial parks has removed the inter-employer competition it experienced in China. A deeper explanation involves Samsung’s development – as Vietnam’s largest single source of FDI, and major producer of that country’s exports – of synergistic and symbiotic relationships with Vietnam’s national and subnational governments. These relationships have allowed Samsung to influence development strategies for industrial parks and their LLMs. Samsung has invests expansively in forms of education and training whose benefits extend beyond the areas in which its manufacturing facilities operate, to populations that the company does not employ. Providing benefits beyond typical success criteria for FDI in developing economies, Samsung has helped Vietnam’s party-state meet its own legitimacy needs with its internal constituencies, contributing to a broader practical consensus in favour of the party-state’s development policies. This article therefore widens the perspective of FDI to embed it in national and subnational business–government relations.

Partners with Benefits: When Multinational Corporations Succeed in Authoritarian Courts

AbstractScholars often assume that courts in authoritarian regimes cannot credibly protect foreign investors’ interests because these institutions lack judicial independence. In this article, we construct a novel data set on multinational corporations’ litigation activities in Chinese courts from 2002 to 2017. This supports the first systematic case-level analysis of foreign firms’ lawsuit outcomes in an authoritarian judiciary. We find that foreign companies frequently engage in litigation in authoritarian courts. Moreover, we theoretically and empirically distinguish between two types of government–business ties in terms of their effectiveness in incentivizing the host state to protect foreign investors’ interests. We argue that ad hoc, personal political connections deliver only trivial lawsuit success for multinational enterprises, while formal corporate partnerships with regime insiders can lead the state to structurally internalize foreign investors’ interests. In particular, we demonstrate that joint venture partnerships with state-owned enterprises help foreign firms obtain more substantial monetary compensation than other types of multinational enterprises. By contrast, the personal political connections of foreign firms’ board members do not foster meaningful judicial favoritism. These findings are robust to tests of alternative implications, matching procedures, and subsample robustness checks. This article advances our understanding of multinational corporations’ political risk in host countries, government–business relations, and authoritarian judicial institutions.

Contributors

Previous article FreeContributorsPDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinked InRedditEmailQR Code SectionsMoreWei Chen (陈玮) is assistant professor at the School of International and Public Affairs, Shanghai Jiao Tong University. Her research interests include comparative political economy, political economy of contemporary China, especially government-business relations in China.Emile Dirks is a postdoctoral fellow at The Citizen Lab at the University of Toronto’s Munk School, University of Toronto. His research on policing and biometric surveillance in China has been published by the Australian Strategic Policy Institute and The Citizen Lab, and he is a frequent contributor to international media on these subjects.Yuefang Duan is a professor of resettlement economics at China Three Gorges University in the School of Economics and Management and the director of the Research Center for Reservoir Resettlement. His research interests mainly focus on involuntary resettlement that is caused by development projects. He has been involved in numerous research projects and published more than 80 papers on Chinese resettlement policies and practice.Diana Fu is an associate professor of political science at the University of Toronto and nonresident fellow at Brookings Institution. Her research portfolio includes civil society, repression, authoritarian citizenship, diaspora activism, and labor politics. She is the author of the award-winning book Mobilizing without the Masses: Control and Contention in China (Cambridge, 2018). She is a member of the Royal Society of Canada’s College.Jiying Jiang (蒋佶颖) is a PhD candidate in the Department of Political Science at the University of California, San Diego. Her research interests include Chinese politics and policymaking, legislative process, and bureaucratic politics. Her dissertation examines the political logic of ambiguity in Chinese national statutes.Shu Keng (耿曙) is a university research fellow at the School of Public Affairs, Zhejiang University. His research interests include comparative political economy, Chinese local governments, and cross-Strait relations. His recent publications include a book, Making Governments Work in China (in Chinese, 2022), a co-edited textbook, Comparative Politics (in Chinese, 2021), and several articles in China Journal, China Quarterly, and Journal of Contemporary China.Sarah Rogers is a senior lecturer in contemporary Chinese studies at the Asia Institute, University of Melbourne. She is a geographer who studies social, political, and environmental change in China. Her research interests include hydropolitics, poverty alleviation, resettlement, agrarian change, and climate adaptation. She is a chief investigator on two Australian Research Council Discovery Projects: one on the technopolitics of China’s South-North Water Transfer project (2017–22) and one on the restructuring of China’s agricultural sector (2018–22).Ju-Han Zoe Wang is a lecturer in environment and development at James Cook University. Her research expertise includes environmental governance, agrarian change, rural development, indigenous knowledge, and migration. She has been conducting research looking at the influence of various environmental, development, and agrarian interventions (e.g., NGO projects, government policy, and commodity markets) on natural resource uses in China.Brooke Wilmsen is a senior lecturer in development studies in the School of Humanities and Social Sciences at La Trobe University, Australia. A former Australia Research Council DECRA holder and current Australian Research Council Discovery Project Chief Investigator on restructuring of China’s agricultural sector (2018–22), her research interests include forced displacement, involuntary resettlement, climate adaptation, social protection, and agrarian change.Siyi Zhang (张思意) is a PhD student at the Department of Sociology, Zhejiang University. Her research interests include personnel management in the public sector and local government behavior in China. She has recently published an article in China Quarterly.Tan Zhao (赵檀) is assistant professor at the School of Public Administration and Policy, Renmin University of China. His research focuses on rural governance in contemporary China. Previous article DetailsFiguresReferencesCited by The China Journal Volume 89January 2023 Published on behalf of the Australian Centre on China in the World at the Australian National University Article DOIhttps://doi.org/10.1086/722961 © 2023 The Australian National University. All rights reserved.PDF download Crossref reports no articles citing this article.

Embedded symbiosis: an institutional approach to government-business relationships in the Chinese internet industry

ABSTRACT Studies on the Chinese internet mostly focus on how the government censors content and regulate digital platforms. We rarely know how internet companies understand, respond to and negotiate the relationship with the government. This study examines Danlan, the company that runs the world’s largest gay dating app Blued. We approach the interaction between Danlan and the government with an institutional perspective, treating them both as organizations seeking resources and legitimacy. Drawing on fieldwork, we develop the concept of embedded symbiosis, which characterizes the collaborative government-business relationship, and explore how Danlan, the seemingly weak side in this relationship, plays an active role in initiating, negotiating, and maintaining such relations at different stages of embeddedness. Danlan endeavors to form a symbiosis with the government to pursue its survival and development, yet eventually risks alienating from the gay community and colluding with the state in governing homosexuality. The case of Danlan shows the possibility for internet companies to seek legitimacy in an ever-changing political environment through working closely with the authorities and even becoming part of the governmental system itself.

Government–Business Relations and Corporate Cash Holdings: Evidence from China*

AbstractThis study employs data from Chinese firms between 2017 and 2019 to explore how government–business relations affect corporate cash holdings. We find that healthy government–business relations have a significantly positive impact on corporate cash holdings. The mechanism test reveals that the former affects the latter via investment opportunities. Furthermore, product market competition positively moderates the relationship between government–business relations and corporate cash holdings, but financial constraints negatively moderate this relationship. The results of our research have implications for the government to optimize the quality of governance and for enterprises to adjust their business strategies.