Role Of Political Connections Research Articles

Policy Uncertainty, Earnings Management and the Role of Political Connections

Policy Uncertainty, Earnings Management and the Role of Political Connections

Association of Tax Haven and Corporate Tax Avoidance: Does Political Connection Matter?

This study specifically examines the association between tax haven and corporate tax avoidance, along with the role of political connection in the association. We use two types of corporate tax avoidance measurements to capture corporate tax avoidance as a whole and the specific profit-shifting scheme. Based on the data of Indonesian multinational companies (MNC) over the 2010–2019 period, we find that MNC with tax haven affiliation is positively associated with corporate tax avoidance. Moreover, our result indicates that political connection significantly moderates the association of tax haven affiliation and corporate tax avoidance.

The Role of Political Connections in Bad Times: Evidence from the COVID-19 Pandemic

The Role of Political Connections in Bad Times: Evidence from the COVID-19 Pandemic

Trade policy uncertainty, political connection and government subsidy: Evidence from Chinese energy firms

This paper analyzes the causal relationship between trade policy uncertainty, government subsidies, and the role of political connections using annual data on Chinese energy firms from 2003 to 2018. The results show that when trade policy uncertainty increases, the Chinese government tends to increase subsidies for energy firms, and firms with political ties may receive more subsidies. Furthermore, firms with poor sales performance and in less marketized regions will be granted even more subsidies when uncertainty rises and firms are politically connected. We also observe that subsidies promote firms' fixed asset investments and innovations but decrease their overall investment efficiency.

Innovation quantity or quality? The role of political connections

Based on the heterogeneity of innovation quantity and quality, this study investigates the impact of political connections on enterprises' innovation. Using the data of Chinese listed enterprises from 2003 to 2015, we find that political connections have a positive impact on enterprises' innovation quantity, but they are detrimental to innovation quality. We further find that political connections weaken the promotion of government subsidies on innovation quality and even reduce the R&D intensity of enterprises, which serves as an essential determinant of innovation quality. The government can stimulate enterprises' innovation quality by improving marketization, intellectual property protection, and anti-corruption.

The relationship between management ability and investment opportunities with an emphasis on the role of political connection

Purpose: With the expansion of the quality level of activity as well as the widespread development of economic affairs, financial and investment decisions are among the most complex issues that arise in order to obtain the best return and desirability in the best conditions. In this regard, financial managers, given the primary responsibility for these decisions, seek to establish relationships between the factors of the firms in the firm, including investment opportunities. The purpose of this paper is to examine the relationship between management ability and political connection with investment opportunities. The QT ratio and market to book ratio (MTB) are used to measure corporate investment opportunities. Methodology: Corporate political connection is defined by Fasio's political cost variables and the use of the TOPSIS multi-criteria decision-making models and the Shannon entropy weighting method. In order to test the hypotheses, 116 companies listed in Tehran Stock Exchange during the period 2014-2019 were selected for the sample. Findings: The results of the analysis using the generalized least squares hybrid regression (GLS) method indicate that there is a significant and positive relationship between management ability and investment opportunities in Tehran Stock Exchange companies. There is a negative and significant relationship between political connection and investment opportunities. The political connection also does not affect the relationship between management ability and investment opportunities. Originality/Value: The purpose of this paper is to examine the relationship between management ability and political connection with investment opportunities. The QT ratio and market to book ratio (MTB) are used to measure corporate investment opportunities.

The Role of Political Connections and Family Ownership in Increasing Firm Value

In the face of business competition, a company strategy is needed by seeking and exploiting opportunities in the business environment, one of which is through political connections. Ownership structure plays an essential role in the company to determine the firm performance. The high concentration of family ownership has the power to reduce agency conflicts between management and stakeholders in a company. Concentrated ownership can serve as corporate governance mechanism for better and effective monitoring of management. This study was conducted to determine empirical evidence of the effect of political connections and family ownership structure on firm value. The sample in this study was 390 data of the manufacturing company. The data analysis used is moderating regression analysis. The results of this study are a positive influence of political connections and family ownership structure on firm value. The results showed that the more the company had a strong political connection and was controlled by the family, the more the firm value would increase. The interaction of political connections can strengthen the influence of family ownership on firm value. It proves that the family ownership structure plays a role in determining political connections in Indonesia, especially in manufacturing companies. The existence of empirical evidence that shows that the firm value controlled by a politically connected family is higher than companies that are not connected politically, which implies investors to invest in companies that are politically connected and companies controlled by families with majority ownership because it is proven to increase firm value.

The role of political connection in access to finance, technology and new ventures success in emerging markets

The role of political connection in access to finance, technology and new ventures success in emerging markets

Validating Vignette Designs with Real-world Data: A Study of Legal Mobilization in Response to Land Grievances in Rural China

AbstractHow well do vignette designs capture actual behaviour in the real world? This study employs original survey data featuring both hypothetical vignettes and behavioural questions in order to assess the external validity of descriptive and causal inferences in survey experiments. The survey was conducted in a three-province, probability-proportional-to-size sample of 1,897 rural residents in China and focuses on the legal mobilization of citizens in response to grievances involving land rights. In terms of descriptive inference, we find that relative to the behavioural benchmark, hypothetical vignettes significantly over-estimate legal mobilization in response to a grievance, particularly for higher-cost actions like petitioning the government and litigating in court. We find that data from hypothetical vignettes affect causal inference as well, producing significantly different results regarding the effect of political connections and legal knowledge on legal mobilization. The study makes a contribution by identifying conditions under which hypothetical vignettes are less likely to produce valid inference. It engages a rich literature on disputing and legal mobilization in the field of Chinese politics and helps to resolve debates over the role of political connections and legal knowledge.

The power of Connections: Evidence from financial companies

The role of political connections has been highlighted as an important influence on firm behaviour and value. We argue that political connections are just part of a wider pool of connections such as those with regulatory bodies and government officials. Using a quasi-experiment, we provide empirical evidence that broader directors' connections reduce company risk. More specifically, we find a negative and significant relationship between directors with both government and regulatory bodies' connections and company risk. Interestingly, we find that connected female directors are less risk-averse compared with their male counterparts. Our results also reveal that connected directors, though offered generous compensation packages, do not necessarily generate higher stock abnormal performance. Therefore, shareholders of financial companies should consider the trade-off between the incremental costs and benefits of appointing connected directors. The paper provides helpful insights for regulators and wider stakeholder groups.

Does corporate governance affect financial reporting quality of politically connected firms?

Political connections raise the issue of corporate governance in the disclosure of information. The purpose of this study was to examine the effect of political connections, the effectiveness of the board of commissioners and audit committees, and the quality of external audits on the quality of the company's financial statements. Using a sample of large companies in the Indonesian capital market as many as 871 samples. Regression analysis panel data was used for this analysis. It was found that political connections negatively affect on the quality of financial reporting. The quality of financial reporting of a politically connected firm is lower than those of politically unconnected firms. The effectiveness of the board of commissioners and audit committee is not effective enough in carrying out the internal monitoring function in the company. The influence of political connections can contribute to weak corporate governance and contribute to the low quality of financial reporting. The results of this study are expected to be a reference for investors to determine investment preferences in politically connected companies or not. For management, the results of this study are expected to be a consideration in recruiting the board of commissioners and other policies. Policymakers must encourage or mandate companies to disclose clearer information about the company's relationship with government, political parties, or politicians so that investors and all interested parties can use this information to better assess the quality of the company's financial statements. This study is the first trial to examine more comprehensively the role of political connections, the effectiveness of the board of commissioners and audit committee and the impact of external audit on the quality of financial reporting.

External and internal economic impacts of eco-innovation and the role of political connections: A sustainability narrative from an emerging market

Eco-innovation is an evolving area of research and might have practical implications for cleaner production. While the identification of eco-innovation’s economic consequences has been widely investigated in the extant literature, many questions remain regarding its impact in the context of developing countries. This study investigates the effects of eco-innovation on the cost of equity capital and corporate financial performance as well as the role of political connections as a moderating variable in Indonesia as an emerging market. The samples are all nonfinancial companies listed on the Indonesian Stock Exchange from 2011 to 2016. The data are processed using the panel regression method. This study finds that eco-innovation does not affect the cost of equity capital or company performance. However, political connections do, and they moderate the association between eco-innovation and the cost of equity capital but in a positive direction. This implies that political connections cannot generate investor trust via the eco-innovation efforts of companies.

Political connections and household access to bank loans: evidence from China

Using data from a large household survey among 8,438 households in China in 2011, we analyse whether the fact that a household head is a member of a political party in China increases the probability that the household has access to a bank loan. We investigate how these connections influence the decision of households to apply for a bank loan (i.e., the demand side) and the decision of the bank to approve the loan (i.e., the supply side). We show that political connections are positively associated with both the households’ willingness to apply for a loan, as well as with the probability that they get a loan from the bank. We make two contributions to the literature on the determinants of households’ access to credit. We are the first to analyse the role of political connections as a determinant of households’ access to bank loans. Second, we analyse the role of political connections throughout the process of allocating bank loans, i.e., we decompose the loan application process into the households’ self-selection process and bank’s selection process.

Effect of political connection on corporate environmental investment: evidence from Chinese private firms

ABSTRACT This paper investigates the effect of political connections on corporate environmental investment. Using the survey data gathered from Chinese private firms, we find that political connection is significantly positively associated with environmental investment. The results are still valid after using Heckman two-stage approach and propensity score matching method to mitigate endogenous problems. Furthermore, we find the positive role of political connection in environmental investment is more pronounced for the firms joining the government-controlled business association, namely the All-China Federation of Industry and Commerce (ACFIC).

Role of political connections in land investment: evidence from rural India

Decentralization in India was implemented as a remedy for the ineffectiveness of government schemes in reaching and benefitting the poor and the necessity of involvement and participation of the very citizenry at the grassroots that are most in need of government intervention and support. However, if this participation itself tends to be dominated by the elite, or prone to corruption, and therefore exclusionary, it becomes a case of the remedy being as bad, if not worse than the malaise. It is in light of the above that this paper attempts a two-part analysis of the IHDS-I and II (India Human Development Survey, first and Second Round) data pertaining to Indian Rural Households, wherein the first part, we examine whether their political connections or lack thereof determine the investment in land by these households. Upon finding that this is indeed the case, the second part is devoted to probing into the significance of possible links that may drive such a positive relationship. Our results show that access to financing instruments of investment by a rural household is indeed more probable in the case of a politically connected household vis-a-vis one lacking such connections.

The Role of Political Connections on Family Firms’ Performance: Evidence from Indonesia

The purpose of this study is to investigate the relationship of firms with family ownership and their performance in Indonesia and further examine on how political connections affect this relationship. This study used 933 samples from 413 companies listed on the Indonesia Stock Exchange (IDX) in the period between 2014 and 2016. Using ordinary least square (OLS) regression, the results shows that firms without family ownership (non-family firms) have better performance than firms with family ownership (family firms) in Indonesia. Furthermore, the findings also show that the performance of family firms significantly improve when the firms are affiliated with political connections. Our findings imply that establishing political connections in family firms will increase the performance of the firms.

The Role of Political Connections in IPO Pricing

We frame IPO pricing as an efficiency problem for prospective issuers and explore the effect of connections formed via lobbying and PAC (Political Action Committee) contributions as proxies for corporate political connections. Rather than imposing a regression-based framework, we allow relationships to manifest themselves in a data-driven manner. Our analysis reveals nonlinearities between IPO pricing efficiency and the two contribution avenues. We uncover relationships separately according to business sector and also whether or not firms are heavily regulated. We conclude that future work should be split by industry according to the degree of regulation.

Politically connected firms and the effectiveness of International Financial Reporting Standards adoption

In response to the ongoing debate about whether IFRS has improved accounting quality, I introduce a new firm-level determinant of effective IFRS adoption: the political connectedness of a firm. Established political connections recognise value from firms, which they reward with shielding from enforcement agencies and/or providing financial resources outside of capital markets. By using the exogenous shock of mandatory IFRS adoption in the EU, I isolate the effect that political connections have on discretionary accounting choices. I find that although accounting quality is ex ante and ex post lower for politically connected firms with top executives in federal roles, there is no incremental difference in the positive effect of IFRS adoption relative to non-connecting firms. This finding suggests that political connections are not fully immune to IFRS effects, and yet the role of political connections is not completely negated by mandated IFRS adoption.

CEO’s political connections, institutions and audit opinions

PurposeThe purpose of this paper is to investigate whether audit opinions of listed firms in China vary systematically with the political connections of the firm’s chief executive officer (CEO). Prior literature only shows the importance of political influence to auditor choice and audit quality.Design/methodology/approachA politically connected firm is defined as a firm in which the CEO has a political background. The authors use a “difference-in-difference” model to control for self-selection problems.FindingsThe authors find that the likelihood of receiving a favourable opinion in the subsequent period is positively associated with a CEO’s political connections. This positive association is stronger with CEOs connected to local government within the same region. The authors further find that the CEO’s political connections have more influence on favourable audit opinions in non-state-owned enterprises (non-SOEs) in a less developed and lower investor protection region. The influence is also less significant in the regions where there are more non-state-owned or foreign banks and where there are greater penalties for political corruption and relationship-based contracting.Originality/valueThe study complements and extends the existing literature on the role of political connections in the economy by providing evidence on the effect of a CEO’s political connections on audit opinions. The authors extend the research on auditing in emerging markets by explicitly accounting for unique institutional and market factors in China. They explore audit quality by observing how audit opinions are directly shaped by political and institutional factors.

Role of Political Connections in Strategy Execution: Project Announcements and Project Costs

While extant literature has discussed the benefits that corporate political strategies provide to firms, the mechanisms for such benefits remain largely unexplored. Prior work has examined a few me...