Role Of Political Connections Research Articles

Inward FDI and local firms' political connections in emerging markets: Evidence from China

AbstractResearch SummaryResearch on the spillover effects of foreign direct investment (FDI) into emerging markets has primarily focused on local firms' productivity or innovation outcomes while overlooking their nonmarket strategies. Based on the resource dependence theory, we propose that inward FDI has a U‐shaped impact on local firms' political connections. This is because when FDI is at a low to medium level, its spillover benefits substitute for local firms' dependence on government resources. As FDI further increases, its competitive threats outweigh spillover benefits, driving local firms to a greater dependence on the government to neutralize the threats. This relationship is contingent on external and internal factors altering resource similarity between FDI and local government. Our analyses of Chinese listed firms support our predictions.Managerial SummaryThis study delves into how firms in emerging markets respond to inward FDI, particularly focusing on the role of political connections as a nonmarket strategy. Our findings offer valuable insights for both local firms and governments, providing a holistic view of the opportunities and challenges associated with inward FDI. We advise local firms to adopt a balanced approach by integrating both market and nonmarket strategies to maximize benefits, as relying solely on political connections may not be the most effective way to address the challenges posed by inward FDI. Additionally, our research emphasizes the importance of evaluating the resources provided by inward FDI against those provided by local governments, as the similarity of these resources alters the role of inward FDI as perceived by local firms.

Speed of Payment in Procurement Contracts: The Role of Political Connections

Speed of Payment in Procurement Contracts: The Role of Political Connections

Partisan conflict and corporate credit spreads: The role of political connection

This paper documents the positive impact of partisan conflict on corporate credit spreads for politically connected companies and industries. The effect is both economically meaningful and statistically significant, stands under an extensive set of control variables, and is stronger for speculative-grade bonds. Several approaches are adopted to resolve endogeneity issues and further establish causality. Partisan conflict affects corporate credit spreads through a discount rate channel, increases investors’ risk aversion, and leads to higher borrowing costs and widening credit spreads. Affected companies respond by reducing debt issuance and postponing investments until the conflict subsides.

Political connections and firms’ trade credit in emerging economies

PurposeTrade credit is an important business-to-business marketing tool for building firms’ competitive advantage. Many studies explore the determinants of trade credits from a trust-based view, but the role of political connections is largely overlooked, despite their potential influence in assessing firms’ trustworthiness in the context of emerging economies. This study aims to fill this gap by examining how political connections affect the capacity of emerging economy firms (EEFs) to grant and receive trade credit.Design/methodology/approachThis study tests a conceptual model using secondary data collected from 1,149 Chinese privately owned listed manufacturing firms between 2008 and 2016.FindingsThis study finds that political connections reduce EEFs’ accounts receivable and payable; their philanthropic activities alleviate this negative effect for accounts payable, while patent applications reduce it for accounts receivable. These findings suggest the effect of political connections can spillover to EEFs’ relationship with their up- and down-stream partners.Practical implicationsThis study has implications EEF managers, particularly in pointing to the detrimental effect of political connections on relationships with buyers and suppliers, and highlights the need to adopt suitable approaches to offset this effect.Originality/valueThis study sheds new light on the negative effect of political connections on EEFs’ capacity to grant and receive trade credit in their exchanges with up-stream and down-stream partners. It enriches the trust-based view of trade credit by revealing the significant influence of EEFs’ political connections, while also advancing a contingency view by testing the moderating role of corporate philanthropic activities and patent applications.

Political Connections and Shareholder Support

AbstractWe study investors’ preferences for corporate political connections in the United States using a novel measure: shareholder votes given to individual directors. We find that, after fully accounting for all firm‐year specific information and a wide range of director characteristics, politically connected directors on average do not obtain significantly greater shareholder support. During our sample period (2010–2020), we observe a diminishing popularity of politically connected directors. Political alignment to the incumbent government matters in the sense that Democrat directors are viewed as valuable to shareholders during the Obama administration. However, during Donald Trump's presidency, a Democrat party affiliation instead turned into a liability. We also find that shareholders have a stronger preference for politically connected directors in heavily regulated industries, suggesting that board members can alleviate regulatory risk. Our study has implications for director selection and the role of political connections in shaping corporate governance practices.

The role of political connections in rapid internationalisation: A study among Chinese international new ventures

Drawing upon the attention-based view, we examine whether political connections facilitate or hinder the speed of new venture internationalisation. Given the limited managerial attention and information-processing capacities of decision-makers, international new ventures (INVs) need to make a trade-off between domestic business activities and rapid foreign expansion. We hypothesise that INVs with political connections, being embedded in political networks in their home market, tend to focus their attention on domestic business activities rather than rapid internationalisation. We also hypothesise that a high level of subnational trade openness mitigates the baseline negative relationship. Analyses based on the longitudinal data of INVs publicly listed in China support the hypotheses. Our study contributes to the literature by unveiling the dilemma of INVs which are developing board political connections at home and seeking rapid internationalisation abroad.

The role of internal control and digital transformation between political connections and financial performance: evidence from China

ABSTRACT Political connections are the main social resource of a company. Internal control and digital transformation are different tools that increase the efficient distribution of resources. This study explores the relationship between executive political connections and financial performance. It also examines the function of internal control quality and digital transformation in terms of this relationship. We used data from Chinese A-share listed companies as a sample. The results suggest that having political connections can significantly improve financial performance and that the quality of internal control plays a partial mediating role in state-owned enterprises. Moreover, when digital transformation is taken as a moderating variable, the role of political connections or internal control in enterprise performance will be weakened. Enterprises should take full advantage of political connections and establish a high-quality internal control system. When enterprises do not have political connections, they can actively carry out digital transformation to change the situation.

The Role of Political Connections in COVID Policy Response: Effectiveness of Firm-Level Government Support in Egypt

The COVID-19 pandemic saw two sets of policy responses: lockdown to limit spread of the virus, which was a huge demand and supply shock, and government support to firms and individuals to offset the effects of this policy-induced shock. This paper explores the allocation and effectiveness of government support to firms in Egypt. We consider both financial support measures which were by and large already being implemented pre-COVID, as well as tax- and loan-related exemptions and deferments. After controlling for the endogeneity of government support, our main findings show that the latter has helped mitigate the effects of COVID-19, with a significantly larger, favorable impact on smaller, younger and private firms. There is no equity-effectiveness trade-off. However, although these firms apparently make better use of government support, they receive a disproportionately smaller share of it. In line with the emerging ‘unsocial’ social contract, government support has been chiefly determined by political connections and a captured industrial policy. This ‘misallocation’ reinforces the ‘missing middle’ phenomenon which acts as a constraint as SMEs are unable to grow. Nevertheless, the crisis has presented a chance for the pattern of support to slowly shift towards the more vulnerable through the more frequent use of ‘exemptions and deferments’.

The role of political connections in bad times: Evidence from the COVID-19 pandemic

This study investigates the relationship between political connections and firm financial performance during the COVID-19 pandemic. Using a difference-in-differences methodology, we found that politically connected enterprises paid more taxes, employed more employees, and suffered financial performance. This study enriches the literature on the impact of COVID-19 on enterprises and provides suggestions for regulators.

Role of Political Connections and Family Ownership to Related Party Transactions in Indonesia

Role of Political Connections and Family Ownership to Related Party Transactions in Indonesia

The Role of Political Connections in Moderating the Relationship of Profit Management and Company Values (Study on State Owned Enterprises)

This study examines the role of political correction in moderating the relationship between earnings management and firm value during the Joko Widodo and Jusuf Kalla administrations in the 2015-2019 period. Political connections are measured by the activeness of meetings attended by the Board of Commissioners (main commissioners, commissioners and independent commissioners) who are politically connected. Earnings management uses discretionary accruals while firm value uses the Tobins Q proxy. There are 18 state-owned companies (BUMN) that are sampled in the study with 5 years of observation. By using warpPLS7.0, the results show that earnings management reduces firm value and political connections positively moderate the relationship between earnings management and firm value

Audit Rotation, Information Asymmetry, and the Role of Political Connections: International Evidence

Audit Rotation, Information Asymmetry, and the Role of Political Connections: International Evidence

Financial Crisis, Production Networks, and Shock Transmissions across Sector and Space: the Role of Political Connections

Financial Crisis, Production Networks, and Shock Transmissions across Sector and Space: the Role of Political Connections

Firm Strategies and Market Power: The Role of Political Connections

Firm Strategies and Market Power: The Role of Political Connections

The Role of Political Connections in the Relationship Between Managerial Ability and Fraudulent Financial Statements

Research aims: This study seeks to prove empirical evidence regarding the effect of managerial ability on fraudulent financial statements.Design/Methodology/Approach: The population of this study was manufacturing firms listed on the Indonesia Stock Exchange in the 2017-2019 period. The data met the criteria of as many as 90 companies with a total of 270 observations. Then, hypothesis testing in this research used moderated regression analysis.Research findings: Study outcomes demonstrated that managerial ability positively impacted fraudulent financial statements. Furthermore, the positive influence of managerial ability on the fraudulent financial statement was weaker when the company was politically connected.Theoretical contribution/Originality: This study provides empirical evidence regarding the heterogeneity of managerial ability and political connections as predictors of fraudulent financial statements.Practitioner/Policy implication: The study result provides a reference for regulators to provide more effective oversight of companies with superior managerial capabilities and is politically connected.Research limitation/Implication: The limitations in this research can be considered to formulate further research related to variable measurement. In addition, no single measurement method can explain various conditions.

How Goal-Based Categorization Shape Negative Spillovers Among Firms:The Role of Political Connection

This study advances and tests the notion that the phenomenon of negative spillovers— whereby bystander firms are penalized due to their similarity to perpetrator firms— is shaped by two distinct forms of categorization. We analyze how and why medias’ interpretative process following instances of corporate crisis will likely include not only prototype-based categorization but also goal-based categorization. We highlight the role and relevance of this neglected distinction by extending negative spillover predictions to include two unique predictions based on goal-based categorization. First, we propose an amplifying effect: if the perpetrator firm has political connections, which may trigger media’s goal-based categorization, then that bystander firm will suffer a more significant negative spillover effect. Second, we also posit a mitigating effect: if the bystander firms have political connections, then the negative spillover effect to bystander firms will be lessened. We find support for our hypotheses in analyses of the tenor of media coverage to corporate crisis for all China listed firms. We discuss the implications of our theoretical perspective and empirical findings for research on negative spillovers and political connections.

The effect of earnings management on tax avoidance with political connections as a moderating variable

This study aims to determine the effect of earnings management on tax avoidance and the role of political connections in moderating those relationships. The population in this study are manufacturing companies listed on the Indonesia Stock Exchange for the 2016-2020 period. There are 234 samples out of 835 total observations, produced by using purposive sampling. This study was tested by using Multiple Linear Regression Analysis and Moderated Regression Analysis. The results show that earnings management has a significant positive effect on tax avoidance and political connections strengthen the effect of earnings management on tax avoidance. This research used several control variables as well, which are firm size, leverage, profitability, firm value, and firm age, and the results show that profitability has a significant negative effect on tax avoidance, the firm value partially has a significant positive effect on tax avoidance, while firm size, leverage, and firm age have no significant effect on tax avoidance.

Registration Reform and the Role of Political Connections in the Initial Public Offering Process: Evidence From China.

Registration system reform is a significant and important event in the marketization of the Chinese stock market. Using social network theory, we examine how this institutional change affects the function of the network in initial public offering (IPO) activities. As an exogenous event, registration system reform provides us a good condition to conduct Different-in-Different analysis. Using 1,364 eligible samples of IPO applications in Chinese stock market from 2016 to 2021, the results show that the enterprise’s political connections (PCs) have a positive impact on IPO approval. However, registration system reform mitigates the role of PCs in IPO approval. In particular, attenuation of the efficiency of PCs under the registration system mainly exists in older firms that have long relationships with the government. The registration system can weaken the positive impact of PCs on IPO approval, even under high economic policy uncertainty where endorsements by the government are most effective. Furthermore, under the current Chinese double-track system, which includes both an approval system and a registration system, we find that enterprises with PCs are more likely to stay in the approval system to go public in the multiple application rounds, while enterprises that are not politically connected are more likely to switch the issuance system used from the approval system to the registration system. Lastly, we find that intermediate business connections, as an alternative network, can significantly improve the probability of their clients’ IPO approval, and that registration system reform has strengthened the function of intermediate business connections in IPO approval.

Reputational risks in banks: A review of research themes, frameworks, methods, and future research directions

AbstractThis study examined the research trends on reputational risk in banks using a systematic literature review and network analysis (SLRNA) approach on 35 research articles published between 2010 and 2020. It was found that only developed countries (i.e., the United States and Europe) have been actively contributing to research on reputational risks in banks, suggesting that reputational risks management of banks has not gained the global attention it deserves. Moreover, we identified five broad research themes from the thematic network analysis, namely, reputational risk of operational losses, reputational effects of media tone, performance implications of reputational risk management, management of reputational risk in banks, sustainability practices and reputational risk of banks in the project finance market. Nonetheless, there still a number of areas that require further attention. These include conceptualization of reputational risk management in banks that explore the dynamic and interdependencies in a system thinking framework, the role of corporate governance, environmental and social issues on reputational risk, how sustainability practices shape reputational risk management, the role of political connections in mitigating reputational effect of operational loss events, and how information and communication technology (ICT) mechanisms impact reputational risk management in banks.

Political Distortions, State Capture, and Economic Development in Africa

This article studies the role of political distortions in driving economic growth and development in Africa. We first discuss how existing theories based on long-run structural factors (e.g., pre-colonial and colonial institutions, or ethnic diversity) may not capture new data patterns in the region, including changes to political regimes, growth patterns, and their variation across regions with similar historical experiences. We then argue that a framework focused on political distortions (i.e., how political incentives impact resource allocation and economic outcomes) may have multiple benefits: it encapsulates many distortions observed in practice, including patronage, variations in contract enforcement and the role of political connections in firm outcomes; it unifies results in Africa and elsewhere; and it leaves a wide scope for policy analysis. We conclude by overviewing reforms that may curb such distortions, including changes to campaign financing rules, bureaucratic reform, free trade agreements, and technology.