Politically Motivated Corporate Decisions As Tournament Participation/Inclusion Games

56 Pages Posted: 29 Feb 2016 Last revised: 11 Jan 2021

See all articles by David Feldman

David Feldman

Banking and Finance, UNSW Business School, UNSW Sydney; Financial Research Network (FIRN)

Chang Mo Kang

Hanyang University - School of Business

Jiaming Li

UNSW Business School

Konark Saxena

University of New South Wales

Date Written: January 1, 2021

Abstract

We introduce political tournaments “participation/inclusion” games. Dominant strategies determine whether players choose to compete by enhancing economic performance. Unique Nash equilibria competitors win (only) inclusion as promotion candidates. We find empirical justification for such equilibria in Chinese province heads’ periodic political tournaments/elections for promotion to the Communist Party politburo and government positions. We document pervasive tournament-synchronized corporate decision-making cyclicality. Firms enhance economic performance by increasing investments, taxes, and employment before elections. Cyclicality is dominantly driven by privately-owned enterprises, is weaker in economically/politically weak(strong) provinces. Political promotions, however, are not sensitive to corporate investments enhanced before tournaments but to long-run investments.

Keywords: Participation/Inclusion Games, Politically Motivated Corporate Decisions, Corporate Investments, Taxes, Agency, China

JEL Classification: G30, G18, G38, D72

Suggested Citation

Feldman, David and Kang, Chang Mo and Li, Jiaming and Saxena, Konark, Politically Motivated Corporate Decisions As Tournament Participation/Inclusion Games (January 1, 2021). Available at SSRN: https://ssrn.com/abstract=2738946 or http://dx.doi.org/10.2139/ssrn.2738946

David Feldman (Contact Author)

Banking and Finance, UNSW Business School, UNSW Sydney ( email )

UNSW Sydney, NSW 2052
Australia
+61 2 9385 5748 (Phone)
+61 2 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Chang Mo Kang

Hanyang University - School of Business ( email )

222, Wangsimni-ro
Seongdong-gu
Seoul
Korea

Jiaming Li

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Konark Saxena

University of New South Wales ( email )

School of Banking and Finance
Australian School of Business
Sydney, NSW 2052
Australia

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