The value of official business group affiliation: Evidence from a change in Korean chaebol designation policy

The Korean government doubled the total assets threshold for its large business group (chaebol) designation policy in 2016. Exploiting this policy change, I examine the value implications of a firm's chaebol affiliation. I show that firms affiliated with business groups that had become non-chaebols because of the policy change experienced substantial decreases in value and investment. Further analysis suggests that these results are partly driven by corporate governance features and increased financial frictions. Short-run stock market reactions to announcements regarding the policy change did not predict its long-term value implications.     

Environmental practices,family control,and corporate performance: Evidence from Chinese family firms

This study analyzes Chinese family firms to determine how environmental practices influence corporate performance in consideration of the moderating effect of family control. Based on hand-collected data of environmental practices and 698 Chinese listed family firms, the results show that the environmental practices and corporate financial performance (CFP) link can be captured by a U-shape, and environmental practices are positively associated with corporate social performance (CSP). Furthermore, family control positively moderates the relationship between environmental practices and performance. The findings provide systemic understandings of the CFP and CSP of family firms through important insights into environmental practices and family control.     

Examining political connections to study institutional change: Evidence from two unexpected election outcomes in South Korea

We argue that the analysis of multiple political connections in an event study framework can improve the study of institutional change. Based on a unique data set of multiple political relationships of 4,936 South Korean board of director members, we show that the large business conglomerates, the chaebol, did not benefit from the unexpected conservative election victories in the 2012 South Korean parliamentary and presidential elections. Personal connections to the presidential candidates and to the opposition party were relevant for the stock returns of small firms. Our findings suggest that Korea's political economy has evolved into a hybrid regime in which the political power of large multinational corporations is limited, but political connections still matter for smaller firms. The corruption scandal that led to the impeachment of President Park in 2017 and the long‐term development of market capitalisation appear to be congruent with the results of our study.     

The value of independent directors: Evidence from China

This paper comprehensively investigates the contribution of independent directors to Chinese listed enterprises through a unique natural experiment. Our results show that in China, independent directors who are incumbent or retired government officials can promote the performance of privately controlled listed enterprises, while other independent directors make little contribution to Chinese listed enterprises. In fact, Chinese independent directors cannot play monitoring and advising roles effectively and even exacerbate the agency problem in listed enterprises. Among them, government official independent directors, however, enable privately controlled listed enterprises to access public resources to enhance firm performance. It can be concluded that Chinese independent directors act as “vases for decoration” on boards. Even worse, government official independent directors play important roles in firms' rent-seeking activities. Our findings provide sufficient new evidence for the classic theory of independent directors and may shed light on corporate governance in other emerging economies.     

The role of FDI in structural change: Evidence from Mexico

Foreign direct investment (FDI) flows to Mexico are substantial and play an important role in the Mexican economy since the mid-1990s. These investments reflect the activities of multinational firms that shape to some extent the economic landscape and sectoral structure in this host country. We illustrate that there is considerable variation in the amounts of FDI and structural change within the country and across time. Based on this, the paper's main purpose is to analyse whether there is a significant impact of FDI on structural change. We conduct an empirical analysis covering the period 2006–16. We use the fixed-effects estimator where the unit of observation is a Mexican state for which we calculate structural change from the reallocation of labour between sectors. The results suggest that (if any) there is a positive effect from FDI on growth-enhancing structural change. This effect depends critically on the lag structure of FDI. Moreover, there is some evidence that the positive effect (a) arises from FDI flows in the industry sector and (b) is present for medium and low-skilled labour reallocation.     

The political determinants of executive compensation: Evidence from an emerging economy

In regulated economies, corporate governance mechanisms such as executive compensation are less driven by market-based forces but more subject to political influence. We study the political determinants of executive compensation for all listed Chinese firms in the context of an exogenous shock that removed market frictions in share-tradability. Under strong political constraints, state ownership reduced the managerial pay levels and increased pay-for-performance sensitivity (to asset-based benchmarks). Board independence and compensation committees do not curb managerial pay, and market-based factors do not have a significant influence. However, these effects reversed following the governance shock (removal of market frictions in share tradability).     

Unpacking the effect of exploration during environmental uncertainty: Evidence from the information technology sector

Environmental uncertainty can render managerial decision‐making about resource deployment particularly difficult. Integrating the knowledge‐based view of the firm and the organizational learning literature, we make a case for deploying specific knowledge‐based resources to cope with specific types of environmental uncertainty. We unbundle knowledge‐based resources into technology‐based and social‐network‐based resources and, using Milliken's (1987) typology of environmental uncertainty, we hypothesize that (a) technological exploration will be more effective during state uncertainty and (b) while being generally beneficial, social exploration will prove more effective during response uncertainty. An analysis of the financial performance of information technology (IT) firms in the United States over the period 1995–2004 generally supports our hypotheses. Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd.     

Policy uncertainty and FDI: Evidence from national elections

This paper examines the impact of policy uncertainty on FDI among 126 countries from 1996 to 2015. Using the timing of national elections as a proxy for policy uncertainty, we find that FDI drops significantly in election years, when policy uncertainty increases. The negative effect of policy uncertainty on FDI also depends on the degree of democratization and the political system. In democracies and countries with the Assembly elected president, the decline of FDI in election years is far more pronounced. Our results highlight the role of policy environment and institution in economic development.     

The value of making commitments externally: Evidence from WTO accessions

This paper studies the value of external commitment to policy reforms in the case of WTO/GATT accessions. The accessions often entail reforms that go beyond narrowly defined trade liberalization, and have to overcome fierce resistance in the acceding countries, as reflected in protracted negotiations. We study the growth and investment consequences of WTO/GATT accessions, with attention to a possible selection bias. We find that the accessions tend to raise income, but only for those countries that were subject to rigorous accession procedures. Policy commitments associated with the accessions were helpful, especially for countries with poor governance.     

The impact of venture capital on family businesses: Evidence from Spain

We analyzed growth in family and non-family Spanish venture capital-backed firms. When the venture capital (VC) firm does not hold a majority stake, the usual risk aversion attitudes in family firms may lead to conflicts between the management cultures of the existing and new shareholders, which may affect growth. We found lower firm growth after the initial round in family firms only when the investor holds a minority stake. Our results may explain the under-representation of family firms in VC portfolios and highlight the need to align the objectives of family managers and VC investors before the initial VC round.     

Balancing social and political strategies in emerging markets: Evidence from India

This article explores the substitution and complementary effects between political and social strategies on firm performance in the context of an emerging market (EM). Using in‐depth, historical case‐study approach, the article investigates how companies integrate political and social resources in this market. Corporate performance includes traditional measures, such as accounting performance and nonfinancial measures like the ease of doing business. The study finds that social strategies are stronger enablers of firm long‐term performance than political strategies. The latter have a short‐term impact on performance, but their success over time is limited. The main drawback of reliance on political resources in EMs is the lack of political stability, fragmented polity, and weak political coalitions. We identify rather limited evidence of firms using these two strategies as complements. Thus, we suggest that firms should employ both these strategies in the EM.     

Consumption and exchange rate uncertainty: Evidence from selected Asian countries

We set out to assess the effects of exchange rate uncertainty on real consumption in selected Asian countries. Consumption influences business cycles, which in turn shape short-run monetary policy decisions. Hence, understanding factors driving consumption is appealing to policymakers. To date, few studies have analysed the effects of uncertainty on consumption. The available ones generally focus on the long-run effects, in spite of the fact that the short-run persistence and adjustments to equilibrium are equally relevant. Our study takes these limitations seriously by distinguishing the short- and long-run effects of exchange rate uncertainty on consumption. Using a flexible dynamic panel data technique that allows long-run effects to be homogeneous and the short-run effects to be heterogeneous, we find that uncertainty impedes consumption in the long run. In the short run, however, the effects are immaterial. This evidence remains robust to the measure of uncertainty, asymmetric uncertainty, inflation and the global financial crisis of 2008. By decomposing uncertainty into its temporary and permanent components, we find that the latter have a stronger effect on consumption in the long run than the former. Although both components demand policy attention, the evidence suggests that policymakers should be more concerned with permanent uncertainty.     

Economic policy uncertainty and cash holdings: Evidence from BRIC countries

This paper examines the effect of Economic Policy Uncertainty (EPU) on cash holding decisions of firms in BRIC countries. Our focus is on the firms in BRIC countries, a particularly interesting group of countries to consider given their increasingly important role in the world economy. By using firm-level data through the 10 years period of 2006–2015, we find that firms prefer to hold more cash when uncertainty increases after controlling for firm level variables with industry and year fixed effects. The results are robust to alternative control variables, EPU calculations and selection of sub-samples. In addition to the country specific EPU levels, global EPU also has a significant positive impact on corporate cash holdings.     

Immigration and structural change: Evidence from post-war Germany

Does immigration accelerate sectoral change from low- to high-productivity sectors? This paper analyzes the effect of one of the largest population movements in history, the influx of millions of German expellees to West Germany after World War II, on Germany's speed of transition away from low-productivity agriculture. A simple two-sector specific factor model, in which moving costs prevent the marginal product of labor to be equalized across sectors, predicts that expellee inflows boost output per worker by expanding the high-productivity non-agricultural sector but decrease output per worker within sectors. Using German district-level data from before and after the war, we find empirical support for these predictions.     

Political connections,political cycles and stock returns: Evidence from Iran

We examine the effect of political connections and political cycles on stock returns of listed companies in Iran. Using 1146 firm-year observations derived from firms listed on the Tehran Stock Exchange (TSE) for the period 2005–2017, we find that political connections are positively associated with firms' annual actual returns and annual abnormal returns. Presidential elections strengthen the positive relationship between political connections and cumulative abnormal returns. Transfer of power to the Moderation (Principlist) party in 2013 (2005) strengthened (weakened) the positive relation between political connections and cumulative abnormal returns. Several sensitivity tests show that the results are not materially different from the main findings. Consistent with the political economy perspective, the findings suggest that political connections in a centrally planned economy are valuable for both parties and they become even more valuable in election years. Moreover, consistent with rational partisan theory, results suggest that investors react to political uncertainties stemming from presidential elections and transfer of power, even in emerging market economies like Iran.     

Economic policy uncertainty and fund flow performance sensitivity: Evidence from New Zealand

Utilizing a large sample of actively managed equity funds and a recently developed EPU index for New Zealand, we show that fund flow performance sensitivity decreases with policy uncertainty. The role of policy uncertainty as a determinant of fund flow performance sensitivity is found to be stronger, particularly for funds with global focus, large sized funds, high momentum funds and those with high idiosyncratic volatility and low downside risk. The findings support the argument that high policy uncertainty dampens investors' ability to process information that allows them to distinguish fund manager skill from luck. The results remain strong after accounting for various macroeconomic factors.     

CEO turnover,political connections,and firm performance: Evidence from China

In our analysis of 5738 CEO turnover events among A-share listed companies in China over the period of 1993 to 2019, we find that CEO turnovers on average hurt companies' market performance with significant negative abnormal returns in the event window. We then group the companies into four types based on whether the outgoing and successor CEOs have political connections, and then calculate the abnormal returns in the event windows of CEO turnovers once announced. We find that companies generally enjoy positive abnormal returns if they replace politically non-connected CEOs with connected ones. Such a positive effect is more evident among non-state-owned enterprises (non-SOEs), companies with worse performance, and companies with higher financial constraints. However, abnormal returns derived from hiring politically connected successor CEOs turn to negative following China's massive anti-corruption campaign in 2012. Our findings provide direct estimations of the economic value of CEOs' political connections for A-share listed companies in China and reveal boundary conditions that moderate the influence of hiring politically connected CEOs.     

Political uncertainty and city bank lending in China: Evidence from city government official changes

Using data hand collected in China between 2001 and 2016, this paper examines how political uncertainty affects city bank lending. Our results show that political uncertainty causes banks to significantly increase loan growth. These results are moderated by the characteristics of government officials, bank characteristics, and the degree of marketization. Our results further show that changes by government officials increase medium-term loan growth, mainly for the real estate and public utilities sector. Finally, we show that city government official changes increase bank lending and, thus, increase credit risk, that is, bank lending has a mediating effect.     

Foreign direct investment and inequality: Evidence from China's policy change

In this paper, we examine the impact of foreign direct investment (FDI) on local urban inequality in China. Specifically, we consider the FDI policy change as an exogenous shock on the local labour markets. We find that cities that have experienced a bigger policy change in promoting FDI between 1997 and 2002 are significantly more unequal in 2005. This pattern is mainly driven by the positive association between FDI liberalisation and skill premia. The result holds after we control for other policy changes, such as privatisation of state-owned enterprises, infrastructure and trade liberalisation. We then turn to investigate the mechanisms using firm and individual-level information. Our firm-level evidence shows that FDI firms not only hire relatively more high-skilled workers but also provide relatively higher wages to high-skilled workers compared to domestic firms. Moreover, the individual-level analysis shows that FDI has a significantly positive spillover effect on wages received by skilled workers employed by state-owned enterprises, but not wages of unskilled workers.     

Women on board and performance of family firms: Evidence from India

This paper provides empirical evidence on the effect of woman directors on performance of family firms in the context of an emerging economy. Using data from India covering periods prior to and post institution of gender quotas, we find evidence that the presence of woman directors on board leads to higher firm performance. However, this positive effect is driven by independent woman directors. Further this effect gets attenuated when family members occupy key management positions in the firm. We conclude that governance structures of firms in emerging economies matter for the impact of woman directors on firm performance.