Performance Implications of Ties to the Government and SOEs: A Political Embeddedness Perspective

Abstract

In many countries governments not only regulate business activities, but also become involved in the corporate governance of individual firms through ownership and board ties. While existing studies usually focus either on benefits of political connections or on costs of government influence, a political embeddedness perspective helps us consider both advantages and constraints associated with ties to the government. In particular, firms with direct ties to the government will experience significant costs associated with government officials' involvement in the corporate governance process. In contrast, firms with ties to state-owned enterprises (SOEs) are connected to the government indirectly and thus, while getting access to state-owned resources, avoid costs associated with the government's interventions. This study compares the performance consequences of board and ownership ties to the government with the consequences of board and ownership ties to SOEs. I find that ties to SOEs are associated with higher profitability, while no significant differences are discovered for firms with direct ties to the government. Copyright (c) 2009 Blackwell Publishing Ltd and Society for the Advancement of Management Studies.

Social network contingency, symbolic management, and boundary stretching

“…Direct ties with SOEs are desirable because, 'SOEs often are endowed with unique assets that the government is reluctant to privatize. SOEs often have exclusive control over valuable assets, such as natural resources, communication, and transportation networks or unique technologies' (Okhmatovskiy, 2010(Okhmatovskiy, : 1025. SOEs also tend to be important customers for products and services (Toninelli, 2000).…”

How powerful political ties appropriate resources and how weaker organizations protect themselves: A case study from Indonesia

“…Yet, we also know that political ties can derail firm strategy in various ways (e.g., Fan et al, 2007;Siegel, 2007). They may expropriate funds (Fan et al, 2007), become involved in corporate governance (Okhmatovskiy, 2010), demand bribes (Li, Yao, & Ahlstrom, 2015;Shleifer & Vishny, 1994), interfere with management (Ahlstrom, Bruton, & Lui, 2000) or introduce diverging goals (Sun, Mellahi, & Thun, 2010). Research finds that political ties are particularly salient in emerging economies (Faccio, 2006), where institutions may be weak and organizations substantially dependent on the government .…”

Government Banking in Russia: Magnitude and New Features

“…The degree of political interference in such banks is lower, allowing them to take business decisions fast and to pursue essentially profit-oriented policies. Looking at data for 2001-2003, Okhmatovskiy (2009 found that in terms of profitability proxied by return on assets the banks with ties to stateowned enterprises had an advantage over banks directly controlled by the government.…”

“…Indirect public ownership opens preferential access to public funds while allowing a higher degree of immunity from government interference (Fan, Wong, Zhang, 2005;Okhmatovskiy, 2009). The degree of political interference in such banks is lower, allowing them to take business decisions fast and to pursue essentially profit-oriented policies.…”