Three essays on corporate-political relationships

Abstract

This study examines the effect of corporate-political relationships on corporate decision making, performance, and value. In the first essay, presented in Chapter 3, I examine whether defendant firms use their political connections as an element of litigation defense. I document that lawsuit filing encourages firms to make contributions during litigation. I also report that cases of politically connected firms are resolved quicker and are more likely to get dismissed or transferred to another court. I find, however, that firms do not receive any benefits from their political connections during the trial stage. Thus, verdict and monetary penalties are not affected by firms' political contributions. In the second essay, presented in Chapter 4, I examine the effect of target's political connections on the process of mergers and acquisitions. I find that foreign acquirers are more likely to complete acquisitions of politically connected targets than domestic firms. I document that foreign acquirers are also more likely to choose tender offers and pay in cash than domestic acquirers. Additionally, I demonstrate that acquirers from countries where corporate-political relationships are common pay higher premiums for politically connected targets. In the third essay, presented in Chapter 5, I examine the effect of the difference in political orientation between a firm and a CEO on corporate decisions, firm performance, and value. I find that firms with a difference in political orientation deviate from the industry practices of resource management. I also document a negative effect of a difference in political orientation on firm performance and value, which increases with the size of this difference. Finally, I report that changes in political regulations do not change the effect of a difference in political orientation.