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Firms and Politics

Paper Session

Friday, Jan. 3, 2020 8:00 AM - 10:00 AM (PDT)

Manchester Grand Hyatt, Seaport F
Hosted By: American Finance Association
  • Chair: Jonathan Karpoff, University of Washington

Media Partisanship and Fundamental Corporate Decisions

April Knill
,
Florida State University
Baixiao Liu
,
Florida State University
John McConnell
,
Purdue University

Abstract

Using the introduction of Fox News as a natural experiment, we investigate whether partisanship in television coverage influences corporate decisions. We find that, during the George W. Bush presidency, firms led by Republican-leaning managers headquartered in regions into which Fox was introduced shift upward their total investment expenditures, investment expenditures devoted to R&D, and leverage. Our findings imply that in making fundamental corporate decisions, Republican-leaning managers are swayed by the Republican slant of Fox that presents an optimistic macroeconomic outlook. The results highlight the importance of heterogeneity in media slant in understanding the role of the media in corporate decision-making.

Do Political Boundaries Affect Firm Boundaries?

Matthew Denes
,
Carnegie Mellon University
Raymond Fisman
,
Boston University
Florian Schulz
,
University of Washington
Vikrant Vig
,
London Business School

Abstract

We investigate how changes in legislative boundaries affect firms in the U.S. Every decade, states redraw their congressional districts to account for changing population dynamics within the state and across the country. We find that redistricting imposes considerable costs on firms that operate in districts whose boundaries change. At the state level, we document that firm-level uncertainty significantly increases when new district lines are drawn. Additionally, firms affected by these new boundaries experience negative abnormal equity returns. Within a state, we examine firms who experience a change in representation due to redistricting relative to those firms whose representation is unaffected. We find that redistricted firms decrease capital expenditures and investment in R&D, and there is a higher likelihood of subsequently relocating. These effects are stronger for standalone firms. Taken together, this paper provides evidence about the link between political boundaries and the boundaries of firms.

Who Pays a Visit to Brussels? Cross-Border Firm Value Effects of Meetings with European Commissioners

Kizkitza Biguri
,
BI Norwegian Business School
Jörg Stahl
,
Catholic University of Portugal

Abstract

Analyzing data on meetings of U.S. company representatives with European Commission (EC) policy-makers, we present novel evidence on the value of political access in a cross-border setting. Meetings with Commissioners are associated with substantial positive abnormal equity returns. We then study channels of value creation. Using a dataset of merger cases at the EC, we find that U.S. firms with political access are more likely to receive a favorable decision than their peers without meetings. We show that a firm's sensitivity to the European corporate tax environment is a strong predictor of the likelihood of the firm seeking political access at the EC. Our work contributes to the scant literature on multinational firms' efforts to influence politicians in an international setting.
Discussant(s)
John Lott
,
Crime Prevention Research Center
Pat Akey
,
University of Toronto
Tracy Wang
,
University of Minnesota
JEL Classifications
  • G3 - Corporate Finance and Governance