I. Harymawan, M. Nasih, Muhammad Madyan, Diarany Sucahyati
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.
{"title":"The Role of Political Connections on Family Firms’ Performance: Evidence from Indonesia","authors":"I. Harymawan, M. Nasih, Muhammad Madyan, Diarany Sucahyati","doi":"10.3390/ijfs7040055","DOIUrl":"https://doi.org/10.3390/ijfs7040055","url":null,"abstract":"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.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114482304","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%--14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.
{"title":"Private Credit Under Political Influence: Evidence from France","authors":"Anne-Laure Delatte, Adrien Matray, Noémie Pinardon-Touati","doi":"10.2139/ssrn.3429836","DOIUrl":"https://doi.org/10.2139/ssrn.3429836","url":null,"abstract":"Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%--14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-04-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116052449","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Why and when do firms optimally deviate from target cash? And why do we observe imperfect adjustment of cash? In this paper, we postulate and provide evidence that policy uncertainty induces financing frictions and adjustment costs which decelerate the speed of adjustment (SOA) of cash toward target. We also find that the effects of policy uncertainty on SOA are higher for firms that operate below target cash than for firms that operate above target cash. Firms that operate below target cash accelerate SOA while firms that operate above target cash decelerate SOA. Overall, the results suggest that in the face of policy uncertainty shocks, firms optimally deviate from target cash as the expected benefit of deviation is greater than the expected value of approaching the target.
{"title":"Policy Uncertainty and Cash Dynamics","authors":"Daniel Tut","doi":"10.2139/ssrn.3403775","DOIUrl":"https://doi.org/10.2139/ssrn.3403775","url":null,"abstract":"Why and when do firms optimally deviate from target cash? And why do we observe imperfect adjustment of cash? In this paper, we postulate and provide evidence that policy uncertainty induces financing frictions and adjustment costs which decelerate the speed of adjustment (SOA) of cash toward target. We also find that the effects of policy uncertainty on SOA are higher for firms that operate below target cash than for firms that operate above target cash. Firms that operate below target cash accelerate SOA while firms that operate above target cash decelerate SOA. Overall, the results suggest that in the face of policy uncertainty shocks, firms optimally deviate from target cash as the expected benefit of deviation is greater than the expected value of approaching the target.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-04-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126162220","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a large sample of the Chinese public firms, this study documents that the government intervention via state ownership can mitigate the stock crash risk. The mitigation effect of state ownership is more pronounced in the crisis periods and in the sample of firms with shares held by central government. Further evidence indicates that high state ownership mitigates the crash risk by deterring the short selling activities. Our empirical results reveal that short sellers especially informed short sellers, view high state ownership as the implicit government bailout guarantee against bankruptcy and voluntarily withdraw shares shorted. The decreased informed short selling activities block the incorporation of bad news.
{"title":"State Ownership, Implicit Government Bailout Guarantee, and Crash Risk: Evidence From China","authors":"Mingfa Ding, Zhongda He, Yuecheng Jia, Minggao Shen","doi":"10.2139/ssrn.3319336","DOIUrl":"https://doi.org/10.2139/ssrn.3319336","url":null,"abstract":"Using a large sample of the Chinese public firms, this study documents that the government intervention via state ownership can mitigate the stock crash risk. The mitigation effect of state ownership is more pronounced in the crisis periods and in the sample of firms with shares held by central government. Further evidence indicates that high state ownership mitigates the crash risk by deterring the short selling activities. Our empirical results reveal that short sellers especially informed short sellers, view high state ownership as the implicit government bailout guarantee against bankruptcy and voluntarily withdraw shares shorted. The decreased informed short selling activities block the incorporation of bad news.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133153775","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
For multiple decades, activists have sought to institute an international legal regime that limits the ability of despotic governments to borrow money and then shift those obligations onto more democratic successor governments. The goal of this chapter is to raise the possibility of an alternate legal path to raising the costs of borrowing for despotic regimes. All countries have systems of domestic laws that regulate agency relationships and try to deter corruption; otherwise the domestic economy would not function. Despotic governments are especially likely to engage in transactions that are legally problematic, since by definition, they lack the support of the populace; meaning that there is a high likelihood that actions that they take on behalf of the populace can be challenged as unrepresentative and contrary to the interests of the true principals. The foregoing conditions, if one translates them into the context of an ordinary principal–agent relationship, would constitute a voidable transaction in most modern legal systems. That means that if opposition parties in countries with despotic governments today were to monitor and make public the potential problems with debt issuances by their despotic rulers under their own local laws, it would raise the cost of capital for those despots. To support our argument, we use both the concrete example of the debt issuance shenanigans of the Maduro government in Venezuela and a more general analysis of the relationship between corruption, democracy, and a nation’s borrowing costs.
{"title":"Maduro Bonds","authors":"G. Mitu Gulati, Ugo Panizza","doi":"10.2139/ssrn.3251281","DOIUrl":"https://doi.org/10.2139/ssrn.3251281","url":null,"abstract":"For multiple decades, activists have sought to institute an international legal regime that limits the ability of despotic governments to borrow money and then shift those obligations onto more democratic successor governments. The goal of this chapter is to raise the possibility of an alternate legal path to raising the costs of borrowing for despotic regimes. All countries have systems of domestic laws that regulate agency relationships and try to deter corruption; otherwise the domestic economy would not function. Despotic governments are especially likely to engage in transactions that are legally problematic, since by definition, they lack the support of the populace; meaning that there is a high likelihood that actions that they take on behalf of the populace can be challenged as unrepresentative and contrary to the interests of the true principals. The foregoing conditions, if one translates them into the context of an ordinary principal–agent relationship, would constitute a voidable transaction in most modern legal systems. That means that if opposition parties in countries with despotic governments today were to monitor and make public the potential problems with debt issuances by their despotic rulers under their own local laws, it would raise the cost of capital for those despots. To support our argument, we use both the concrete example of the debt issuance shenanigans of the Maduro government in Venezuela and a more general analysis of the relationship between corruption, democracy, and a nation’s borrowing costs.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"467 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132810443","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using transactions conducted by publicly listed firms in China’s primary land market during 2000-2012 as a case study, we confirm that political connections are essentially corruption. By constructing unique measures to partial out the key factors confounding political connections, namely managerial ability and informational advantage, we find that firms whose board directors are retired prefectural government officials paid 15.8-25.5% less for land than firms without such ties. As a counterfactual, such a discount is absent in the secondary land market where the local government is not the sole seller, and during unannounced anti-corruption audit campaigns.
{"title":"Are Political Connections Corruption? Evidence from China's Primary Land Market","authors":"Ting Chen, Li-Jun Han, J. Kung, Jiaxin Xie","doi":"10.2139/ssrn.3822839","DOIUrl":"https://doi.org/10.2139/ssrn.3822839","url":null,"abstract":"Using transactions conducted by publicly listed firms in China’s primary land market during 2000-2012 as a case study, we confirm that political connections are essentially corruption. By constructing unique measures to partial out the key factors confounding political connections, namely managerial ability and informational advantage, we find that firms whose board directors are retired prefectural government officials paid 15.8-25.5% less for land than firms without such ties. As a counterfactual, such a discount is absent in the secondary land market where the local government is not the sole seller, and during unannounced anti-corruption audit campaigns.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127707207","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2017-08-28DOI: 10.1016/J.EMEMAR.2017.08.002
M. Belkhir, Narjess Boubakri, Jocelyn Grira
{"title":"Political Risk and the Cost of Capital in the MENA Region","authors":"M. Belkhir, Narjess Boubakri, Jocelyn Grira","doi":"10.1016/J.EMEMAR.2017.08.002","DOIUrl":"https://doi.org/10.1016/J.EMEMAR.2017.08.002","url":null,"abstract":"","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"118437599","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Arash Amoozegar, Kuntara Pukthuanthong, Thomas J. Walker
Purpose - In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the governance has been cited as an influential factor that contributed to the financial crisis of 2007-2008. Various legislative and regulatory bodies have pressured financial firms to improve their risk governance structures to better weather potential future crises. Assuming that CROs and risk committees are given sufficient power to influence the corporate governance of financial institutions, can CROs and risk committees protect financial institutions from violating litigable securities law? Can they improve bank performance? The paper aims to discuss these issues. Design/methodology/approach - The authors employ a principal component analysis to construct a single measure that captures various aspects of RM in a firm. The authors compare the risk governance characteristics of sued firms with their non-sued peers and consider one of the final outcomes of risky behavior: shareholder litigation. The authors compute ROA and buy-and-hold abnormal returns to capture operating and stock performance and examine whether risk governance improves bank performance by reducing litigation risk. Findings - Proper risk governance reduces a firm’s litigation probability. The addition of the RM factor to models that have been previously proposed in the literature improves the accuracy of those models in identifying companies that are most susceptible to class action lawsuits. Better RM improves the financial and stock price performance of financial institutions. Research limitations/implications - The data collection is laborious as the information about CRO governance has to be hand-collected from the 10-K report. A broader sample employing, e.g., non-US banks may provide additional insights into the relationship between RM practices, shareholder litigation, and bank performance. Practical implications - The study shows that a bank’s RM functions play a critical role in improving bank and operating performance and in reducing shareholder litigation. Banks should emphasize the RM function. Originality/value - This is the first study to examine the mechanism behind the positive association between RM and bank performance. The study shows that better RM improves overall bank performance by decreasing litigation risk.
{"title":"On the Role of the Chief Risk Officer and the Risk Committee in Insuring Financial Institutions Against Litigation","authors":"Arash Amoozegar, Kuntara Pukthuanthong, Thomas J. Walker","doi":"10.1108/MF-05-2016-0127","DOIUrl":"https://doi.org/10.1108/MF-05-2016-0127","url":null,"abstract":"Purpose - In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the governance has been cited as an influential factor that contributed to the financial crisis of 2007-2008. Various legislative and regulatory bodies have pressured financial firms to improve their risk governance structures to better weather potential future crises. Assuming that CROs and risk committees are given sufficient power to influence the corporate governance of financial institutions, can CROs and risk committees protect financial institutions from violating litigable securities law? Can they improve bank performance? The paper aims to discuss these issues. Design/methodology/approach - The authors employ a principal component analysis to construct a single measure that captures various aspects of RM in a firm. The authors compare the risk governance characteristics of sued firms with their non-sued peers and consider one of the final outcomes of risky behavior: shareholder litigation. The authors compute ROA and buy-and-hold abnormal returns to capture operating and stock performance and examine whether risk governance improves bank performance by reducing litigation risk. Findings - Proper risk governance reduces a firm’s litigation probability. The addition of the RM factor to models that have been previously proposed in the literature improves the accuracy of those models in identifying companies that are most susceptible to class action lawsuits. Better RM improves the financial and stock price performance of financial institutions. Research limitations/implications - The data collection is laborious as the information about CRO governance has to be hand-collected from the 10-K report. A broader sample employing, e.g., non-US banks may provide additional insights into the relationship between RM practices, shareholder litigation, and bank performance. Practical implications - The study shows that a bank’s RM functions play a critical role in improving bank and operating performance and in reducing shareholder litigation. Banks should emphasize the RM function. Originality/value - This is the first study to examine the mechanism behind the positive association between RM and bank performance. The study shows that better RM improves overall bank performance by decreasing litigation risk.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126895376","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Research Summary: We examine the value of political ties on firm performance in an emerging economy. Using social exchange theory, we posit that political connections propel firms to engage more in proself and prosocial activities, which mediate the relationship between political ties and firm performance. The institutional environment moderates the dual mediations such that as the institutional environment improves, the mediation effect through proself engagement weakens, whereas the mediation effect through prosocial engagement strengthens. We found support for these propositions by analyzing two samples of firms in China: A surveyed sample of 363 small- and medium-sized firms and data from 2,780 publicly listed firms from 1999 to 2014. Our findings shed light on the strategic value of political ties, coinciding with the development of institutional environments.
{"title":"Political Ties and Firm Performance: The Effects of Proself and Prosocial Engagement and Institutional Development","authors":"Haijian Liu, Gracy Yang, D. Augustine","doi":"10.2139/ssrn.3858304","DOIUrl":"https://doi.org/10.2139/ssrn.3858304","url":null,"abstract":"Research Summary: We examine the value of political ties on firm performance in an emerging economy. Using social exchange theory, we posit that political connections propel firms to engage more in proself and prosocial activities, which mediate the relationship between political ties and firm performance. The institutional environment moderates the dual mediations such that as the institutional environment improves, the mediation effect through proself engagement weakens, whereas the mediation effect through prosocial engagement strengthens. We found support for these propositions by analyzing two samples of firms in China: A surveyed sample of 363 small- and medium-sized firms and data from 2,780 publicly listed firms from 1999 to 2014. Our findings shed light on the strategic value of political ties, coinciding with the development of institutional environments.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"913 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116395748","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we investigate the influence of CEO political orientation on corporate lobbying efforts. Specifically, we study whether CEO political ideology, in terms of manager-level campaign donations, determines the choice and amount of firm lobbying involvement and the impact of lobbying on firm value. We find a generous engagement in lobbying efforts by firms with Republican leaning-managers, which lobby a larger number of bills and have higher lobbying expenditures. However, the cost of lobbying offsets the benefit for firms with Republican CEOs. We report higher agency costs of free cash flow, lower Tobin's Q, and smaller increases in buy and hold abnormal returns following lobbying activities for firms with Republican managers, compared to Democratic and Apolitical rivals. Overall, our results suggest that the effects of lobbying on firm performance vary across firms with different managerial political orientations.
{"title":"Corporate Lobbying, CEO Political Ideology and Firm Performance","authors":"Omer Unsal, M. Hassan, Duygu Zirek","doi":"10.2139/ssrn.3263066","DOIUrl":"https://doi.org/10.2139/ssrn.3263066","url":null,"abstract":"In this paper, we investigate the influence of CEO political orientation on corporate lobbying efforts. Specifically, we study whether CEO political ideology, in terms of manager-level campaign donations, determines the choice and amount of firm lobbying involvement and the impact of lobbying on firm value. We find a generous engagement in lobbying efforts by firms with Republican leaning-managers, which lobby a larger number of bills and have higher lobbying expenditures. However, the cost of lobbying offsets the benefit for firms with Republican CEOs. We report higher agency costs of free cash flow, lower Tobin's Q, and smaller increases in buy and hold abnormal returns following lobbying activities for firms with Republican managers, compared to Democratic and Apolitical rivals. Overall, our results suggest that the effects of lobbying on firm performance vary across firms with different managerial political orientations.","PeriodicalId":189146,"journal":{"name":"FEN: Political Risk & Corporate Finance (Topic)","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122353784","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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