Political Connections Research Articles

State ownership, political connection and ESG performance

State ownership, political connection and ESG performance

Decoding the impact of political uncertainty on IPO underpricing in China

PurposePolitical factors play a crucial role in China's initial public offering (IPO) market due to its distinctive institutional context (i.e. “economic decentralization” and “political centralization”). Given the significant level of IPO underpricing in China, we examine the impact of local political uncertainty (measured by prefecture-level city official turnover rate) on IPO underpricing.Design/methodology/approachUsing 2,259 IPOs of A-share listed companies from 2001 to 2019, we employ a structural equation model (SEM) to examine the channel (voluntarily lower the issuance price vs aftermarket trading) through which political uncertainty affects IPO underpricing. We check the robustness of the results using bootstrap tests, adopting alternative proxies for political uncertainty and IPO underpricing and employing subsample analysis.FindingsLocal official turnover-induced political uncertainty increases IPO underpricing by IPO firms voluntarily reducing the issuance price rather than by affecting investor sentiment in aftermarket trading. These relations are stronger in firms with pre-IPO political connections. The effect of political uncertainty on IPO underpricing is also contingent upon the industry and the growth phase of an IPO firm, more pronounced in politically sensitive industries and firms listed on the growth enterprise market board.Originality/valueLocal government officials in China usually have a short tenure and Chinese firms witness significantly severe IPO underpricing. By introducing the SEM model in studying China IPO underpricing, this study identifies the channel through which local government official turnover to political uncertainty on IPO underpricing.

Politics and city growth in Italy: Do connections matter?

AbstractIn this paper, I assess the existence of a political connection premium for Italian municipalities during the so-called “Second Republic” (1991–2011). The early 1990s witnessed a seminal event in Italian political history with the “Mani Pulite” (“Clean Hands”) investigation following the fall of the Berlin Wall. Subsequently, major political parties dissolved, culminating in a bipolar political landscape characterized by cyclical alternation between center-right and center-left factions (extending until at least 2011). Exploiting population data on small and medium-sized Italian municipalities between 1991 and 2011, I found that “politically connected” municipalities showed a population premium of about 2.5% compared to “non-politically connected” ones. The results are robust to NUTS-3 fixed effects, to a comprehensive set of controls, and to a full set of robustness checks. The relationship is confirmed using aggregate municipal income data as an additional proxy of local economic growth. Over and above this, social capital and the quality of local institutions seem to play a pivotal role in enabling the political connection. Election-related checks suggest the connection as two-way: using municipal data from the 2013 and 2018 general elections, I found that the treated municipalities depicted a higher turnout and fewer populist votes.

Does intellectual capital have an impact on company risk and performance?: Effect of moderation political connection

This study looks at the effect of intellectual capital on firm performance and risk as well as the moderating effect of political connections. Companies in the current economic era are required to pay more attention to intangible resources. Intellectual capital is considered as the main intangible asset for companies used to create and use knowledge to increase firm value. The population in this study are non-financial companies listed on the Indonesia Stock Exchange in 2014-2021. The analysis method used in this study uses Moderated Regression Analysis. The study finds that the effect of intellectual capital has a significant effect on firm performance and risk, respectively. The moderating effect also affects the overall performance and market-side risk of the firm. Political connections make corporate decision-making inefficient. Future research can consider industry differences in the relationship of intellectual capital to firm performance and risk. This research has managerial implications, namely companies should consider increasing investment in the development and utilization of intellectual capital. Intellectual capital should be integrated into long-term corporate strategy. The limitations of this study are that the findings of this study are limited to developing countries and the need for more comprehensive measurements for intellectual capital.

Effect of government's environmental attention on corporate philanthropy based on the institutional theory: Evidence from China's heavily polluting companies.

The underlying motivation behind corporate philanthropy (CP) is subject to multiple interpretations. For emerging markets, traditional interpretations based on a perspective of interest exchange often fall short. The institutional environment in China is characterized by uncertainty, particularly in the field of environmental protection, where the government's attention, a scarce institutional resource, can influence the behaviors of heavily polluting companies. The government's environmental attention (GEA) may be subject to campaign-style investment, which provides an opportunity for research. This study attempts to use institutional theory to construct a difference-in-differences model using the Central Inspection of Environmental Protection as an exogenous shock. It examines the causal impact of GEA on CP, observing that GEA has a positive effect on CP, especially for large companies, companies in less competitive industries, companies located in high-pollution areas, and companies with high environmental expenditure. The results indicate that campaign-style institutional changes provide a non-transactional political motivation for CP. In addition, we discuss the mechanism, which is the expectation change. Campaign-style institutional changes work by altering corporations' expectations of the future institutional environment. We verify this mechanism from two perspectives, namely, the intensity of changes caused by uncertainty and corporate sensitivity to changes. Our results remain robust when subject to several tests based on different identification hypotheses and alternative measures. Unlike the existing literature on the political connections driving CP in China, this study, based on the institutional theory framework, reveals that campaign-style institutional changes constitute a non-transactional, unidirectional political motivation, which is a significant driving factor for CP in a Chinese context. This study evaluates the importance of GEA and reveals the non-transactional political motivations from the institutional theory perspective. This not only enriches existing discussions on the political motivations of CP but also broadens our understanding of the relationship between institutional uncertainty and CP in emerging markets.

Rabbenu Tam and Count Henry the Liberal: New Sources

ABSTRACT Recent scholarship has demonstrated the political and intellectual connections between Rabbi Jacob ben Meir (‘Rabbenu Tam’) and Henry the Liberal, Count of Champagne, and his court. Further evidence found in Hebrew manuscript sources serves to fine-tune earlier conclusions and provide new insights regarding the unique nature of the relationship. Rabbenu Tam's rulings on matters of secular governance suggest a positivistic stance toward Henry's rule vis-a-vis baronial authority in the 1150s and 1160s, at a time when Champagne was rapidly developing politically and economically.

Corruption and emigration from the Western Balkans: evidence from a dynamic system GMM model (2012-2022)

According to neoclassical models, migration takes place when there is a strong probability that individuals will recoup their human capital investments. As a result, workers typically move from low-income to high-income areas and the larger the expected income gap between areas, the higher the number of migrants. In countries where corruption is endemic, jobs are often secured through political connections and bribes. This will lead to a higher unemployment level as well as to a lower return to human capital. Consequently, a significant proportion of the population considers emigration as the only path to succeed. The present study is focused on the impact of corruption on emigration from six Western Balkan countries. A System Generalized Method of Moments is estimated to analyze migrant stocks in 28 receiving countries during the period from 2012 to 2022. We suggest that corruption can directly influence migration stocks in receiving countries.

Business deserts politics under weak institutions: evidence from Russia, 2003–2010

Abstract Businesspeople are expected to invest in political connections when the institutions are weak. Using an original dataset from Russia in 2003–2010, we document changes in political connections of the richest businesspeople and show that within the institutional environment of a fledgling autocracy political engagement stops paying off, and the businesspeople retreat from politics. The businesspeople’s political disengagement reveals their insider assessment of the quality of Russian political institutions, indicating that as autocracy consolidated in Russia, its political institutional structure was in decay. This finding contributes to our understanding of authoritarian institutions, suggesting that even though autocracies nowadays might be institutionalized to a much higher degree, in the short-run autocracy is still detrimental to institutionalization.

Biographies and Revisionist Histories in Modern China

Abstract Born and raised in the British Caribbean island colony of Trinidad, Eugene Chen was one of China’s foremost foreign ministers during the early twentieth century, defending his nation’s interests despite its military weakness and political disunity. Relying primarily on newspapers and what he calls the “Eugene Chen Papers,” sourced from Eugene Chen’s grandson in Hong Kong, Walton Look Lai reveals Eugene Chen’s multiple identities, first as “Sun Yat-sen’s personal representative and spokesman in Shanghai,” then as “the global face and voice of the Wuhan regime,” and ultimately as “China’s ‘dynamite’ diplomat [who] challenged the British lion over the Hankow concession and won.” For many, Eugene Chen, for all his political accomplishments and connections to the most illustrious personalities in Republican Chinese history, cut a relatively obscure figure. Eugene Chen’s obscurity points to an old problem in Chinese historiography, or any historiography, for that matter. The privileging or canonization of certain historical figures at the expense of attention to others stems partly from the binary of reform and revolution held by historians when investigating the transformations of twentieth-century China or its transition from empire to nation. Walton Look Lai’s book on Eugene Chen is thus a contribution to our broader historiographical attempt to dismantle the obsolete paradigms that caricature complex historical personalities as one-dimensional persons of their times.

The nexus of political connections and corporate tax strategies in Pakistan

PurposeExtant literature investigating the tax payment behaviour of politically connected firms largely supports the notion that politically connected firms have tax sheltering incentives, i.e. politically connected firms pay significantly less tax. Our paper adds to this stream of literature by considering the tax payment behaviour of two different groups of politically connected firms in Pakistan, viz. civil connected firms and military connected firms.Design/methodology/approachThe paper sheds light on the tax payment behaviour of politically connected firms and provides evidence that the tax incentives of politically connected firms are shaped by the institutional structure and contextual factors.FindingsThe results indicate that civil (military) connected firms pay significantly lower (higher) tax than non-connected firms. The findings hold in the face of a number of robustness tests, including the use of alternative proxies for the tax variable and endogeneity concerns.Originality/valueThese results make a significant contribution to the existing literature examining the tax payment behaviour of politically connected firms by providing evidence suggesting that tax sheltering is not the only viable option for politically connected firms; rather, some groups of connected firms have tax under-sheltering incentives. Our findings add to the political cost hypothesis and the signalling hypothesis in relation to tax payment incentives of politically connected firms.

Do CEO Connections to the Chinese Politburo Pay Off and How?

ABSTRACTResearch Question/IssueThis study investigates the effect of connections to the Politburo, the top 25 members of the Chinese Communist Party (CCP), on CEO compensation, pay‐for‐performance sensitivity, and turnover decisions using a comprehensive dataset of 3764 Chinese listed firms from 2007 to 2019.Research Findings/InsightsOur findings reveal that CEOs of privately owned listed firms who have connections to the Politburo via shared educational backgrounds receive significantly higher compensation (up to 20% more). However, such connections do not significantly affect CEO compensation in state‐owned enterprises (SOEs). CEOs who have connections to the Politburo also exhibit lower turnover rates, and their compensation is less sensitive to performance outcomes. Our measure of connections excludes reverse causality, as we leverage an exogenous shock—the promotion to the Politburo of an individual with whom the CEO is already connected—to investigate the gain associated with a political connection in the absence of CEO turnover in private firms. This event allows us to observe that CEO pay increases significantly in such cases. We also find that elite connections serve as a mechanism for resource allocation, as politically connected CEOs in private firms benefit from higher subsidies and lower tax rates, and politically connected CEOs in SOEs benefit by being appointed to larger SOEs. Additionally, we find that the positive relationship between CEO pay and elite connections is even stronger when the connection is stronger but is negative when the CEO is a CCP member.Theoretical/Academic ImplicationsThis study enriches the literature on political connections by introducing a novel proxy for elite connections based on past educational ties to members of the political elite. It disentangles the influence of personal educational connections to the political elite from that of a more generic political membership of the CCP, offering a clearer understanding of their distinct impacts.Practitioner/Policy ImplicationsOur study underscores the necessity of differentiating between private and SOEs in China due to their distinct characteristics and goals. Furthermore, it highlights the critical role of elite political connections in emerging economies such as China in resource allocation, labor market dynamics, and corporate governance.

Using Political Connections to Raise Rivals’ Costs: Evidence from an Emerging Market

AbstractIn this paper, we leverage resource dependency theory to examine the impact of political connections on rivals’ costs and how this impact is affected by rival‐side and politician‐side contingencies. Using a panel dataset of Pakistani firms, our system generalized method of moments estimates show that politically connected firms can increase their rivals’ costs by influencing their rivals’ dependency relationship with the government. This impact is attenuated by the rivals’ strategic flexibility and social legitimacy, which provide some protection or insulation from political attacks in resource markets. Together, our findings extend the contingent dynamics of resource dependency in political markets from focal firms to competitors and offer significant contributions to the corporate political activity literature and resource dependency theory.

How does land subsidy policy affect economic performance? Theory and evidence from China

ABSTRACT The causes and consequences of governments’ land subsidy policy aiming for promoting industry development have been little studied. We measure the degree of industrial land subsidy from the spatial perspective by the price ratio of neighbouring commercial and residential land to the industrial land which firm purchased from local governments. By merging data of Chinese listed firms with land transaction data over 2007–2017, we find that industrial land subsidy is related to political connection and governments’ selective industry policy. We also find that industrial firms received land subsidies have lower productivity and profitability. Our results indicate the inefficiency of industrial land subsidy policy. We interpret these findings as evidence of the resource curse of subsidies, where the industrial land subsidy policy benefits firms at the expense of efficiency. Policy of reshaping the incentives of local governments is recommended to correct the distortion of land subsidy policy.

Company Value Moderates The Relationship Of Profitability, Liquidity, And Political Connections To Stock Returns

TInvestors increasingly demand stock investments, as evidenced by the number of Indonesian capital market investors reaching 10 million in 2022. This surge shows the public's high interest in gaining profits from stock investments, necessitating in-depth research on factors influencing stock returns for optimal profits. This research examines the influence of profitability, liquidity, and political connections on stock returns, using firm value as a moderating variable. Employing a quantitative, descriptive methodology and purposive sampling, 29 firms listed in LQ45 from 2020-2022 were selected. The study uses primary and secondary data, analyzed with Eviews 12 software through a panel data regression model. Findings reveal that profitability positively affects stock returns, while liquidity and political connections do not. However, firm value affects stock returns and can moderate the impact of profitability but not liquidity or political connections.

The Effect of Political Connections, Independent Commissioners and Capital Intensity on Tax Aggressiveness with Transfer Pricing as a Moderating Variable (Empirical Study of Mining Companies Listed on the IDX for the 2018-2022 Period)

This study aims to examine the effect of political connections, independent commissioners, and capital intensity on tax aggressiveness with transfer pricing as a moderating variable. The population in this study is all mining companies listed on the Indonesia Stock Exchange (IDX) in the 2018-2022 period. The purposive sampling method is a sample selection technique used in this study with various specific criteria. The data analysis technique used is the classical assumption test consisting of the normality test, multicollinearity test, heteroscedasticity test and autocorrelation test. Meanwhile, hypothesis testing is carried out using multiple linear regression analysis, f test, coefficient of determination (R2) test and t test. The results of the data analysis show that political connections have a significant effect on tax aggressiveness with a significant value of 0.029 (p <0.05). Likewise, independent commissioners also have a significant effect on tax aggressiveness with a significant value of 0.034 (p <0.05). On the other hand, capital intensity does not have a significant effect on tax aggressiveness with a significant value of 0.333 (p > 0.05). Furthermore, political connections have a significant effect on tax aggressiveness with transfer pricing as a moderating variable, with a significant value of 0.027 (p < 0.05). Independent commissioners also show a significant effect on tax aggressiveness with transfer pricing as a moderating variable, with a significant value of 0.004 (p < 0.05). However, capital intensity does not have a significant impact on tax aggressiveness when moderated by transfer pricing, with a significant value of 0.480 (p > 0.05).

Does Innovation Sustainability Attract Retail Investors? The Clientele Effect in China

Innovation sustainability is essential for businesses to maintain their competitive edge and ensure long-term growth. This not only benefits individual companies but also entire industries. Despite its importance, research on retail investors’ preferences for innovation sustainability remains limited. To address this gap, we analyzed unique data on shareholder numbers in listed Chinese companies from 2007 to 2020. We differentiate between institutional and retail investors to analyze the latter’s preferences. This finding indicates that retail investors prefer to invest in companies with higher innovation sustainability. This preference stems from their limitations in capabilities of information collection, analytical skills, and risk diversification. The clientele effect is more pronounced when companies face a poor innovation environment, an opaque information environment, and a weak political connection. This study contributes to the existing literature by providing empirical support for the clientele effect and shedding light on retail investors’ preferences and investment behavior. By focusing on company fundamentals, our study extends the examination of the clientele effect to the corporate governance level. These insights have significant implications for promoting sustainable development, impacting both companies and the capital market.

Impact of FM Radio on Political Awareness and Engagement among University Students: A Socio-Political Study

This research examines the role of FM radio in shaping the awareness and engagement about politics among university students in Lahore, by focusing on the influence of socio-political aspects. The study purposes to recognize the history of FM radio and its effectiveness to address the socio-political issues. The sample size of 600 students between the ages of 18 and 32 from three private universities of Lahore (University of South Asia, University of Management and Technology, Superior University). The statistics were attained by the technique of purposive sampling; the research finds that FM radio upholds a noteworthy occurrence in spite of the rise of new media. The majority of people listen to FM radio for entertainment, information, education, and development. The findings show that FM radio is an effective medium for raising socio-political awareness and encouraging political connection among youngsters.

Meritocracy and Inequality in South Africa: Understanding Changes in Beliefs and their Influence on Demand for Redistribution

In light of rising global inequality, public concerns for inequality have been declining. This paradox of inequality has been explained by the rise in meritocratic beliefs in some developed countries. Untested in South Africa, the most unequal society, this study aims to report on these issues by investigating the impact of meritocratic and nonmeritocratic beliefs on redistribution preferences in South Africa. Using the International Social Survey Programme data for 2009 and 2019, we find that contrary to some developed countries, meritocratic beliefs have declined despite persistent high inequality. Nonmeritocratic factors like sex and race are perceived as less critical for personal success, while bribery and political connections gain prominence. Results reveal that stronger meritocratic beliefs correlate positively with redistribution preferences, whereas nonmeritocratic beliefs have minimal impact. This challenges the notion that high inequality intensifies meritocratic beliefs and reduces demand for redistribution, suggesting the need to consider South Africa's unique historical and socioeconomic context.

Pengaruh Family Ownership, CEO duality, dan Political Connection terhadap Firm Performance

This study aims to examine the effect of family ownership and CEO duality moderated by political connection on firm performance. Using purposive sampling method, the research observation uses data from 34 companies in the mining industry in the mining sector listed on the Indonesia Stock Exchange (IDX) during 2018-2023 totaling 200 data samples. The data was tested using software Eviews 12 with moderation regression models with the most suitable model estimation is Common Effect Model (CEM). To measure the dependent variable from this study, which is firm performance, this study uses Return on Assets (ROA) as a parameter. As a result of the moderation regression, family ownership has a positive significant effect on firm performance. CEO Duality has no effect on firm performance. Family ownership moderated by political connection has no effect on firm performance. Lastly, CEO Duality moderated by political connection has no effect on firm performance.

Crony Capitalism in Nepali Politics

The objective of this paper is to examine how crony capitalism undermines Nepali politics. The author of this course drew information from both primary and secondary sources, including key informant interviews, academic works by international authors found online, and social media posts. Since this is a qualitative study, the researcher has interpreted the data gathered while performing the research using descriptive and analytical methodologies. The author of the following article intended to elucidate the basic concept of crony capitalism while also revealing Nepali politics and the impact of businesspeople. The article discusses "crony capitalism," a term used to describeunjustified financial gain stemming from unequal administrative and political connections amongst business owners. While non-Western economies are typically linked with the term "crony capitalism," cronyism can arise in any economy due to three main factors. One must exercise caution when identifying cronyism, as what looks like cronyism is often a mediocre solution to an ineffective government program already in place. As a result, cutting cronyism without also cutting the size and reach of the government is challenging. The term "crony capitalism" refers to an economy where the success of corporations is based on close ties between business owners and public authorities. This includes favoritism in the granting of licenses, government subsidies, special tax exemptions, andother forms of interventionist behavior.