Period Of Political Uncertainty Research Articles

Political uncertainty, corporate social responsibility, and firm performance

Our study reveals that companies with higher Corporate Social Responsibility (CSR) ratings exhibit superior stock returns compared to their counterparts with lower ratings during periods of political uncertainty. This phenomenon is more pronounced in a closely contested election with a higher degree of unpredictability. Our results remain robust after addressing potential endogeneity issue and are not affected by the ex-post election outcome or the political donations made by firms. Further analysis indicates that the increase in returns could be attributed to the improved relationship between firms and their internal stakeholders. Overall, our research supports the notion that investing in social capital can facilitate the establishment of stronger relationships with stakeholders, which can ultimately lead to beneficial outcomes during periods of adversity.

Does Political Uncertainty Obfuscate Narrative Disclosure?

ABSTRACT We examine the relation between political uncertainty and narrative disclosure complexity in conference calls. Using firm-level political uncertainty, we find that political uncertainty is positively associated with firms’ disclosures complexity as measured by the Fog index. Decomposing complexity into two latent components—information and obfuscation—we show that political uncertainty significantly increases the obfuscation but has no impact on the information. Further analysis reveals that complex disclosure is motivated by expected poor future performance amid political uncertainty. We also show that, during periods of heightened political uncertainty, obfuscated disclosure is associated with reduced earnings informativeness, increased dispersion in analyst forecasts, and higher volatility in forecast revisions. These findings are robust to including and excluding sentences containing complex political bigrams when calculating Fog. Further evidence shows that, during periods of political uncertainty, managers tend to use a more ambiguous tone and provide scripted and shorter (longer) responses to analysts’ questions (presentations).

Incerteza política e gerenciamento de resultados: Evidências de países da América Latina

Abstract Purpose: This article aims to examine whether political uncertainty affects the accounting choices of firms’ managers in the sense of practicing earnings management through discretionary accruals. Originality/value: The research is original for providing evidence on the direction of earnings management practice following periods of political uncertainty and considering emerging countries in Latin America. The study helps signal to capital market agents in those countries the impact of political uncertainty on the quality of accounting aggregates. Design/methodology/approach: The final sample comprised 352 firms (3,005 observations-year), considering the period 1998-2018. Political uncertainty was a proxy for the countries’ presidential election years. At the same time, earnings management was captured by discretionary accruals estimated according to the Jones’ model (1991) modified by Dechow et al. (2012). Multiple linear regression with estimation by System Generalized Method of Moments (Sys-GMM) guided the tests. Findings: It was found that presidential election periods are associated with managers’ decisions to increase earnings by positive discretionary accruals, allowing us to infer that political uncertainty impacts managers’ accounting choices regarding earnings management. The results proved to be robust to different test alternatives. The findings have practical implications for agents who use accounting information as an informational signal in their decisions, whether from the perspective of investors (current shareholders or potential shareholders) or the perspective of other stakeholders associated with the firm (employees, suppliers etc.).

National identities, European identity and cosmopolitanism: The case of female golf fans at the 2019 Solheim Cup

AbstractThe aim of this paper is to consider the relationship between sport and identity formation by examining testimonies of 24 British women who attended the Solheim Cup golf tournament in 2019 to support a transnational team made up of professional European women players. Relatively little is known about the effects of transnational sports teams on identity formation, not least because such teams are themselves rare. The Solheim Cup, contested by teams of female professional golfers representing the United States and Europe, is one such example. The data set consists of interviews with women who attended the competition that took place in a period of political uncertainty between the UK electorate voting to leave the European Union and Brexit actually taking place. The paper analyses the women's views in relation to national identity, European identity and cosmopolitanism. Although it emerges that most of the women felt more European in the context of a competition involving a team representing Europe and were opposed to the United Kingdom leaving the European Union, they could also be described as cosmopolitan as a result of their educational level, social class and experience of living in or regularly visiting foreign countries.

International political uncertainty and climate risk in the stock market

This paper investigates how political uncertainty interacts with an international firm’s climate risk in affecting the stock market. Using firms from 34 countries, we employ the presidential election events in the United States and those in other countries that have stock markets as a proxy for political uncertainty. We find that the global stock markets respond significantly to political uncertainty induced by the U.S. presidential elections but not to elections in their home countries. Although we observe a marginally significant change in stock return for firms with different levels of climate risk during periods of political uncertainty, we find that firms with high climate risk experience high return volatility and return correlation amid uncertainty associated with U.S. presidential elections. The results are consistent with literature that indicates U.S. presidential election is an indicator of international political uncertainty. Further, we present new evidence on how political uncertainty affects the riskiness of firms with high exposure to climate risk.

Are business groups different from other family firms? Evidence from corporate investments during political uncertainty

Using a large sample of Indian family firms, we examine the investment behaviour of group-affiliated family firms versus standalone family firms during local state elections. While state elections negatively affect corporate investments, family firms invest more than non-family firms. Therefore, using a difference-in-difference estimation, we find that group-affiliated family firms invest significantly more than standalone family firms. Additionally, we find no evidence of distortive investments by group-affiliated family firms due to political pressure; rather, it appears that the unique structure allows these firms to make value-relevant investments when other firms adopt a conservative approach. Overall, our study improves the understanding of family firm investments during periods of political uncertainty.

Constructing the Legitimacy of Governance in Hong Kong: “Prosperity and Stability” Meets “Democracy and Freedom”

Abstract The current political crisis in Hong Kong is characterized by a level of social unrest that the city has not seen since the riots of 1966–67. After that earlier round of turmoil, the British colonial regime secured legitimacy through socioeconomic improvement in Hong Kong. “Prosperity and Stability” became the hallmark of Hong Kong's success, which extended into the period of political uncertainty in the 1980s. Transcending the handover of Hong Kong to China in 1997, this catchphrase was adopted as the slogan of the Hong Kong Special Administrative Region government in its bid for legitimacy through socioeconomic appeals. Against this perennial state rhetoric, grassroots protesters began to demand “Democracy and Freedom” around June Fourth. These public demands have escalated since the Umbrella Movement in an environment of socioeconomic regression. Examining these two pairs of keywords—prosperity/stability and democracy/freedom—this article underscores the contention in the legitimacy of governance in Hong Kong since the closing decades of British rule. This analysis indicates that it would be unproductive for the governing authorities or the protesters to deny the earnestness of either the political or socioeconomic assertions in the ongoing contention of legitimacy to govern Hong Kong.

THE AFTERMATH OF THE ARAB SPRING AND ITS IMPLICATION FOR PEACE AND DEVELOPMENT IN THE SAHEL AND SUB-SAHARAN AFRICA

The Arab Spring, which brought an end to the authoritarian regimes in Tunisia, Egypt and Libya, was greeted with so much expectation, especially as it gave hope for the expansion of democracy. Unfortunately, however, the Arab Spring has only helped to bring about a period of political uncertainty in the affected countries and created the opportunity for political instability in the Sahel and Sub-Saharan Africa. The fragility of states in Africa with the attendant governance deficits have also created the platform for non-state armed actors to penetrate the Sahel and Sub-Saharan Africa, which ultimately impacts negatively on the region. This study, therefore, seeks to investigate the implication of the Arab Spring for peace and development in the Sahel and SubSaharan Africa.

The Bougainville referendum through the eyes of the ‘lost generation’: Observations from Siwai

A referendum to decide on Bougainville's future political relationship with Papua New Guinea was held in November 2019. The deferred, non‐binding, referendum is a key milestone contained in the Bougainville Peace Agreement (BPA), which sought to reconcile a violent conflict from 1988 to 1998. Although the Bougainville peace process has been deemed a success and significant milestones have been reached towards implementation of the BPA, the conflict continues to have enduring impacts. Particular concerns have been raised about Bougainville's large youth population, often referred to as the ‘lost generation’. This paper documents observations of the 2019 referendum from the perspective of four university students born during the conflict in Siwai District, South Bougainville, whom participated officially in the referendum as an observer group. While trauma and a disrupted education have contributed to youth unemployment and substance abuse in Bougainville, the paper offers a stark contrast to negative narratives of young Bougainvilleans as lacking capabilities to contribute to social and political life. As Bougainville embarks on yet another period of political uncertainty, the paper calls for greater attention to finding avenues to support these young voices to ensure that their generation is not ‘lost’ forever.

Dividend policy and political uncertainty: Does firm maturity matter?

Previous evidence has shown that numerous factors influence dividend policy, but how political uncertainty affects a firm’s cash dividend policy remains blurry. This study examines the relationship between cash dividends and political uncertainty in Nigeria. More so, the study analyses whether this relationship prevails on matured and non-matured firms. The study employed ordinary least squares dummy variable (LSDV) approach with robust standard error on a data set of non-financial listed Nigerian firms. The results revealed that political uncertainty strongly influences firm’s cash dividend, and a matured firm tends to pay greater dividends than non-matured firms (firms with more growth options). Thus, this finding suggests that matured firms pay more dividends during period of political uncertainty. Consequently, the study supported the agency theory and the life cycle theory.

The value of family control during political uncertainty: Evidence from Thailand's constitutional change in 2014

We examine the effect of family control on firm value and corporate decision during Thailand's constitutional change arising from the 2014 coup d'état. We find that Thai family firms perform poorly when compared to non-family firms during the period of political uncertainty. The effect is more pronounced when firms have high expected agency costs from outside investors. Further, we find that family firms delay their investments, hold less cash, pay smaller dividends and have poorer access to debt financing sources relative to non-family firms. The reductions in investment and financing activities may at least partially account for their underperformance. Our evidence is consistent with the view that family control enhances firms' survivorship by establishing political connections in times of political uncertainty at the expense of minority shareholders.

Anticipating Future Capital: Regional Caste Contestations, Speculation and Silent Dispossession in Andhra Pradesh

ABSTRACT In 2014, the state of Andhra Pradesh was bifurcated by the Indian government, leaving the truncated state without a capital city. A period of political uncertainty before bifurcation and the announcement of the new capital city created possibilities for land speculation and for the acceleration of the commodification of real estate in different parts of the state. Concentrating on Guntur-Vijayawada in the Coastal Andhra region and Donakonda town close to the Rayalaseema region, this article explores how speculative investments based on political calculations by members of regional elite castes translated into the emergence of competing regional investment zones as possible future choices of the capital city. Through an extended and largely ethnographic study, this article shows how caste politics and regional processes of land speculation led to land transfers without violent struggles between different groups. Rather, the cultural politics of regional differentiation and the economy of anticipation allowed a pragmatic convergence of interests to emerge, where acquisition of agricultural land was followed by silent dispossession.

Control Over the Security Services in Periods of Political Uncertainty: A Comparative Study of Russia and China

Control over the security services is a key ingredient of political survival in authoritarian regimes. This is particularly true during periods of leadership succession and high political uncertainty. In this paper, we compare the strategy used by Vladimir Putin towards the siloviki – the Russian security services – with that employed by Xi Jinping towards the Chinese security services. We find that in both countries, the security services have been significantly strengthened in recent years, while at the same time extensive anti-corruption campaigns have been used to eliminate key officials within the security structures. We argue that both developments can be seen as elements of a strategy to increase control over the public, while eliminating potential competition from regime insiders, in view of a deteriorating economic situation, and the constitutional (or quasi-constitutional) term limits faced by Vladimir Putin and Xi Jinping in 2024 and 2022, respectively.

Looking your Worst: Downward Earnings Management after Activist Challenges

Prior work suggests that firms targeted by contentious activist challenges respond with impression management, promoting positive images of their social performance to maintain audience support. In this paper, we propose that targeted firms face simultaneous incentives to downwardly manage audience members’ impression of their economic performance through negative earnings management. We draw on work in accounting, law, and sociology that suggests that profitability operates as an aggravating cue in punitive assessments and can augment the likelihood of expensive regulatory interventions during periods of political uncertainty. Accordingly, we suggest that firms are motivated to manage their earnings downward when facing contentious challenges. We test this through a longitudinal analysis of firms’ discretionary accruals-based earnings management over the decade spanning 1997-2007. In line with our theory, we find that contentious challenges are associated with significant down-ward adjusted earnings management, and that this is moderated by factors indicating a firm’s general level of non-market risk, including its reputation, the level of political attention directed to it, and regulators’ capacity for monitoring its financial statements.

Corporate philanthropy in a politically uncertain environment: does it bring tangible benefits to a firm? Evidence from China

ABSTRACTWe examine the impact of political uncertainty on a firm’s corporate philanthropy (CP) contribution and the associated direct tangible benefits of CP to a firm. Specifically, we examine two testable hypotheses. (1) When facing political uncertainty, a firm makes more CP, and (2) after a firm makes CP contributions during a period of uncertainty, it will obtain future tangible benefits. Using a sample of Chinese listed firms, we document that a firm, on average, increases its CP significantly during a period of political uncertainty (e.g. when there is a new local communist party secretary or mayor). In addition, we report that, on average, a firm’s donation in year t is positively correlated with its amount of government subsidies, corporate income tax reduction, and short- and long-term bank loan amounts in year t + 1. The findings are robust compared to those of placebo tests and fixed effect models, as well as when using an alternative measure of political uncertainty. We observe that the results are more pronounced among non-state-owned enterprises (non-SOEs) than those among SOEs, corroborating the notion that during a period of political uncertainty, non-SOEs are more willing to build political connections with new city leaders through CP than are SOEs.

Political uncertainty and firms' information environment: Evidence from China

How political uncertainty affects the supply of value relevant information about a firm is an important but unresolved question. Using an emerging market setting where political leaders are expected to exert significant influence on economic activities, we examine the effect of political uncertainty caused by turnovers of local government leaders on a firm’s information environment. We find that during periods of political uncertainty, the total amount of idiosyncratic information about a firm that is available to the market is reduced. The adverse effect on information supply is manifest in firms that are more politically dependent and stronger when uncertainty is more severe. Further, we provide evidence suggesting that firms react to political uncertainty by reducing the amount and the quality of information provided to investors. We find that information intermediaries such as financial analysts and the media have a moderating effect on the information environment as they increase the production of information during periods of political uncertainty. However, these intermediaries do not negate the net loss of information.

Is there conditional convergence in the per capita incomes of BIMAROU states in India?

The stochastic income convergence hypothesis is examined for five BIMAROU (Bihar, Madhya Pradesh, Rajasthan, Orissa and Uttar Pradesh) states in India for the period 1960–2012 using the univariate Narayan and Popp (2010) unit root test with two structural breaks. The per capita incomes of all BIMAROU states, except Uttar Pradesh, are found to be stochastically converging in the long run. Significant structural breaks are detected in the relative per capita income series of the BIMAROU states. Most of the breaks spotted in the relative per capita income series correspond with periods of political uncertainty and regime change in the state elections.

Political Uncertainty and Firm's Information Environment: Evidence from China

How political uncertainty affects the supply of value relevant information about a firm is an important but unresolved question. Using an emerging market setting where political leaders are expected to exert significant influence on economic activities, we examine the effect of political uncertainty caused by turnovers of local government leaders on a firm’s information environment. We find that during periods of political uncertainty, the total amount of idiosyncratic information about a firm that is available to the market is reduced. The adverse effect on information supply is manifest in firms that are more politically dependent and stronger when uncertainty is more severe. Further, we find evidence suggesting that firms react to political uncertainty by reducing the amount and the quality of information provided to investors even when information intermediaries such as financial analysts and the media increase the production of information.

A matter of confidence

Despite record employment levels and impressive growth in recent years, a sustained period of political uncertainty has led to a loss of confidence from some renewable energy investors. Andy King, director of energy for Sweco UK, asks what it means for the future of wind projects in the UK.

Political uncertainty and cash holdings: Evidence from China

We examine the relation between political uncertainty and cash holdings for firms in China. We document that, during the first year of a new city government official's appointment, a firm, on average, holds less cash, which is consistent with the grabbing hand hypothesis of politician. Our results are robust to alternative measures of cash holdings, instrumental variable estimation, sub-samples without firms in four major cities, a matched sample approach, and placebo tests. In addition, our additional analyses suggest that a firm holds significantly less cash if: (a) the newly appointed official is from a different city relative to that from the same city, (b) it faces high political extraction risk, and (c) it has strong twin agency conflicts. Lastly, our extended results suggest that the market value of cash holdings is significantly negative during periods of political uncertainty and firms hide their cash by moving it to related firms via related party transactions.