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The role of political connections in mitigating policy uncertainty: evidence from firm-specific investment

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In this study, I test whether firms reduce the information asymmetry stemming from the political process by investing in political connections. I expect that connected firms enjoy differential access to relevant political information, and use this information to mitigate the negative consequences of political uncertainty. I investigate this construct in…

In this study, I test whether firms reduce the information asymmetry stemming from the political process by investing in political connections. I expect that connected firms enjoy differential access to relevant political information, and use this information to mitigate the negative consequences of political uncertainty. I investigate this construct in the context of firm-specific investment, where prior literature has documented a negative relation between investment and uncertainty. Specifically, I regress firm investment levels on the interaction of time-varying political uncertainty and the degree of a firm's political connectedness, controlling for determinants of investment, political participation, general macroeconomic conditions, and firm and time-period fixed effects. Consistent with prior work, I first document that firm-specific investment levels are significantly lower during periods of increased uncertainty, defined as the year leading up to a national election. I then assess the extent that political connections offset the negative effect of political uncertainty. Consistent with my hypothesis, I document the mitigating effect of political connections on the negative relation between investment levels and political uncertainty. These findings are robust to controls for alternative explanations related to the pre-electoral manipulation hypothesis and industry-level political participation. These findings are also robust to alternative specifications designed to address the possibility that time-invariant firm characteristics are driving the observed results. I also examine whether investors consider time-varying political uncertainty and the mitigating effect of political connections when capitalizing current earnings news. I find support that the earnings-response coefficient is lower during periods of increased uncertainty. However, I do not find evidence that investors incorporate the value relevant information in political connections as a mitigating factor.
ContributorsWellman, Laura (Author) / Dhaliwal, Dan (Thesis advisor) / Hillegeist, Stephen (Thesis advisor) / Walther, Beverly (Committee member) / Mikhail, Mike (Committee member) / Hillman, Amy (Committee member) / Brown, Jenny (Committee member) / Arizona State University (Publisher)
Created2014
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Multinational Corporations Advantage in a Globalized World Examining the Impact Regional Free Trade Agreements have on Multinational Corporations’ Foreign Direct Investment Flows

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Abstract<br/>Foreign Direct Investment has been pursued to economically integrate countries and to increase economic development. This has been accomplished partly through the WTO and Free Trade Agreements (FTAs), which have spurred foreign direct investment (FDI) by removing barriers to trade tariff and nontariff. In addition, they also created a framework…

Abstract<br/>Foreign Direct Investment has been pursued to economically integrate countries and to increase economic development. This has been accomplished partly through the WTO and Free Trade Agreements (FTAs), which have spurred foreign direct investment (FDI) by removing barriers to trade tariff and nontariff. In addition, they also created a framework and legal guidelines and regulations for investment and trade. Research suggests that this is the case when looking at country level data before and after FTAs go into effect. Although the existing literature offers important insights a weakness is it does not often look at the relationship between FTAs and FDI by analyzing firm level data. This is an important relationship to be studied as, beyond governments multinational companies (MNCs) are one of few key actors that can benefit the most and have the capabilities to take advantage of these FTAs. Therefore, studying the relationship between MNCs and their investments both before and after an FTA is signed is important to see if FDI would change in response to Free Trade Agreements and have an impact at the MNC level deployment of FDI. This would be significant to see if the current steady for attracting FDI is working. This is also important as FDI helps countries develop. Therefore, it can be seen as an exceptional contribution to the overall research on the subject. In this paper I will explore how companies have reacted to the formation of FTAs as well as the distinct effects of North-South South-South and North-North Agreements on firm’s investment strategies, using firm level data and drawing on interviews with multiple trade officials.
ContributorsHawks, Noah K (Author) / Gamso, Jonas (Thesis director) / Roy, Nelson (Committee member) / Ault, Joshua (Committee member) / Thunderbird School of Global Management (Contributor, Contributor) / Barrett, The Honors College (Contributor)
Created2021-05
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An Analysis of Income’s Role in the Arizona Public School Tax Credit

Description
Over the years from 2009 to 2017, the people of Arizona witnessed the state consistently defunding the schools, its students academically underperforming, and as a result, the poverty achievement gap widening. Even with the efforts in recent years to re-invest in education, Arizona’s education funding falls below its level at…

Over the years from 2009 to 2017, the people of Arizona witnessed the state consistently defunding the schools, its students academically underperforming, and as a result, the poverty achievement gap widening. Even with the efforts in recent years to re-invest in education, Arizona’s education funding falls below its level at 2008 and the national average. Among Arizona’s funding sources is the Public School Tax Credit, a unique legislation for the state that allows for taxpayers to donate money to certain programs at Arizona public schools and reduce their state income tax liability dollar-for-dollar. Because of the already severe achievement gap in Arizona, this funding source which relies on surrounding neighborhoods’ income raises the concern that, instead of helping Arizona students, it is exacerbating the existing achievement gap. The purpose of this paper is to examine the relationship between income and donations received by schools to determine the validity of this concern. To ensure a comprehensive examination of the relationship between income and donations received, regression tests are run on both the aggregate level and individual level. The tests find that, although income does have a statistically significant correlation with the donations received, it is only positive for the effect of total income on total donations, negative for the effect of average income per return on average donation per donor, and negative for average income per return on total donations. The results imply that to garner high donations, it matters less to be located in a high-earning neighborhood and more important to be located in a moderate-earning neighborhood with a lot of people donating using this credit. Therefore, the concern of income’s effect on donations is valid, but perhaps not in the straightforward way that we would expect.
ContributorsChen, Vivian Young (Author) / Kenchington, David (Thesis director) / Brown, Jenny (Committee member) / Department of Finance (Contributor) / School of Accountancy (Contributor) / School of Politics and Global Studies (Contributor) / Barrett, The Honors College (Contributor)
Created2020-12