The Impact of Political Connections on Managerial Short-Term Resource Adjustment Decisions

61 Pages Posted: 8 Apr 2022

See all articles by Johannes Voshaar

Johannes Voshaar

University of Bremen - Faculty of Business Studies and Economics - Chair of Accounting and Control

Thomas R. Loy

University of Bremen

Jochen Zimmermann

University of Bremen - Faculty of Business Studies and Economics; University of Bremen - Chair of Accounting and Control

Date Written: March 28, 2022

Abstract

This study examines the effect of political connections (i.e., lobbying) on firms’ short-term resource adjustment decisions (i.e., the asymmetric reaction of cost to changes in sales activity). Controlling for a wide range of known determinants of managerial cost behavior as well as firm-level political risk, our results suggest that lobbying firms exhibit significantly less cost stickiness than non-lobbying firms. Lobbying thus reduces managers' preferences to engage in “wait-and-see games”, as it likely results in preferential access to information on government budgeting and legislative processes. The “lobbying effect” is more pronounced for firms without any alternative equivalent information channel, such as personal relations with lawmakers, permanent exchange with regulators, or government contracts. These findings hold for several robustness checks, for instance, controlling for potential self-selection, employing alternative measures of political connections as well as (political) uncertainty, and alternative sample specifications.

Keywords: resource adjustment, cost behavior, political connections, lobbying, political risk

JEL Classification: D8, D72, M40, M41

Suggested Citation

Voshaar, Johannes and Loy, Thomas R. and Zimmermann, Jochen and Zimmermann, Jochen, The Impact of Political Connections on Managerial Short-Term Resource Adjustment Decisions (March 28, 2022). Available at SSRN: https://ssrn.com/abstract=4068981

Johannes Voshaar (Contact Author)

University of Bremen - Faculty of Business Studies and Economics - Chair of Accounting and Control ( email )

Bremen, D-28359
Germany

Thomas R. Loy

University of Bremen ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany

Jochen Zimmermann

University of Bremen - Chair of Accounting and Control ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany
+49 421 218-9119 (Phone)

HOME PAGE: http://www.controlling.uni-bremen.de

University of Bremen - Faculty of Business Studies and Economics ( email )

Hochschulring 4
Germany
+49 421 218 9121 (Phone)

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