Politically Motivated Corporate Decisions As Tournament Participation/Inclusion Games
56 Pages Posted: 29 Feb 2016 Last revised: 11 Jan 2021
Date Written: January 1, 2021
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
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