Addressing Risk by Doing Good: Business Response to Government Policy Initiative

57 Pages Posted: 9 Feb 2023 Last revised: 6 Sep 2023

See all articles by Shengqiao Lin

Shengqiao Lin

University of Texas at Austin

Date Written: November 30, 2022

Abstract

Why do some firms in authoritarian regimes respond actively to government policy initiatives while others resist? This article highlights firm-level political risk as the primary motivator of responses, allowing firms to defend their property rights in weak institutional environments. Supporting evidence derives from the responses of listed firms to the Targeted Poverty Alleviation campaign launched by China in 2015. Empirically, firm-level political risk is measured with a text-as-data approach involving 418,480 Q&As in the meetings between institutional investors and listed companies, not only capturing within-firm variations but also providing a substantial understanding of the political risk firms face. Difference-in-differences models show that political risks increase firms’ expenditure on poverty-reduction programs, especially for those without preexisting political connections. Evidence of regulation decisions suggests that firms actively responding to poverty-alleviation initiatives received preferential treatment in terms of the size of fines and the likelihood of punishment for violation of regulations.

Keywords: state-business relations, political risk, corporate political strategy

JEL Classification: M14, P26

Suggested Citation

Lin, Shengqiao, Addressing Risk by Doing Good: Business Response to Government Policy Initiative (November 30, 2022). Available at SSRN: https://ssrn.com/abstract=4348568 or http://dx.doi.org/10.2139/ssrn.4348568

Shengqiao Lin (Contact Author)

University of Texas at Austin ( email )

Texas
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
380
Abstract Views
1,044
Rank
135,484
PlumX Metrics