Research
Working Papers
Political Risk Insurance: The Role of Lobbying Meetings. (Job Market Paper)
Abstract: The paper studies how the degree of firms' disclosed political risk varies with the intensity of lobbying activities. Beyond the traditional rent-seeking mechanism, lobbying can also overcome information asymmetry between firms and policymakers, enabling them to mitigate political risk exposure. The paper uses the information on lobbying meetings of UK-based publicly listed firms and their disclosed political risk through quarterly conference call reports and shows that lobbying reduces firm-level political risk. However, the effectiveness of lobbying as a risk-mitigating tool depends on the political risk and lobbying type. The largest effect of lobbying on political risk reduction is documented in the case of risk coming from institutions and political processes, tax policy, or environmental policy. The least effect is observed on trade policy uncertainty. The results also show that group lobbying is relatively more effective than individual lobbying as it is associated with better information transfers from policymakers and other meeting participants. Importantly, lobbying at the highest policy level does not contribute much to political risk reduction. However, targeting lobbying activities to specific government positions matters the most, such as the Economic Secretary and Parliamentary under-secretary. Lastly, the value of lobbying is larger during periods of high economic policy uncertainty when the demand for policy information is high.
With a little Help from My Friend: Political Connections and Allocation of COVID-19 Aid. (R & R)
Abstract: The paper studies the role of political connections in allocating COVID-19 support programs. Using Enterprise Survey (BEEPS) data and the corresponding COVID follow-up survey rounds, covering nearly 12,000 firms from 30 countries, the study shows that firms’ political connection status does not affect the overall propensity to receive government support. However, results are heterogeneous and depend on the program type. Politically connected firms have a higher propensity (3.6 percentage points) to get direct cash transfers than those without such connections; the effect is muted for other programs, such as credit payment deferral, access to new credit, fiscal exemption, and wage subsidy. Political bias in distributing cash transfers was only observed during the first few months of the COVID-19 pandemic when the rules of government programs still needed to be set, and the eligibility criteria were not defined. The paper provides evidence that political bias may also lead to resource misallocation. The results show that the value of political connections is much larger among firms that did not experience any negative shock during the pandemic; political connection compensates firms’ non-eligibility status and allows them to access cash transfers. Lastly, the value of political connections does not vary much and is equally observed in different institutional contexts.
Cambridge Working Papers in Economics (CWPE), available at SSRN
Former politicians in high-level corporate positions: does foreign ownership matter? (with Davide Castellani, Stefano Elia, and Irina Surdu)
Abstract: The paper studies the relationship between firms’ political connections and foreign ownership status. Having former politicians in high-level corporate positions is particularly beneficial for foreign-owned firms (MNEs) to access local market knowledge, gain legitimacy, and overcome the liability of outsidership (LoO). Yet, MNEs also face considerable costs and risks when building such political connections. We examine the variation in firms’ political connections based on a comprehensive firm-level dataset of 22,672 firms from 41 countries. The results show that foreign-owned firms are less likely to be politically connected than domestic-owned firms. By integrating LoO and Resource Dependency Theory (RDT), our findings also reveal that the propensity of political connections for foreign firms increases with the degree of dependency on local market conditions. Foreign-owned firms use political connections more when they (1) have higher local market commitment, (2) operate in industries with high informal regulation, or (3) operate in autocratic political systems.
Are Populist Governments Really Pro-People and Anti-Elite? (With Simon Deakin)
Abstract: The paper studies the effect of populist governments on labour regulation and shareholder protection. Using large country-level panel data covering 60 countries between 1970-2018 and various DiD estimators, we find a positive effect of populist transition on individual labor rights, including those relating to fixed-term employment and unjustifiable dismissal. No treatment effect, by contrast, is observed for collective labor rights, relating to employee representation and industrial action. Most features of shareholder protection are not affected by periods of populist government. There are changes in the mandatory bid rule (a proxy for laws favouring hostile takeover bids) and the disclosure of major share ownership which are sizable and statistically significant, but they are in opposite directions: populist transition is associated with loosening mandatory bid requirements, and tightening disclosure rules. Our analysis throws light on the nature of populist government, which is selectively pro-worker, conferring individual protections while avoiding legal changes which might empower independent sources of labour power such as trade unions. Populist governments appear to be lukewarm towards corporate governance rules that promote shareholders’ interests at the expense of workers (hostile takeovers) but are happy to deploy such rules to control rival concentrations of private economic power (disclosure rules).