Politically motivated corporate decisions as tournament participation/inclusion games

David Feldman, Chang-Mo Kang, Jiaming Li and Konark Saxena

Journal of Corporate Finance, 2021, vol. 67, issue C

Abstract: We introduce political tournament “participation/inclusion” games. Dominant strategies determine whether players choose to compete by enhancing economic performance. Unique Nash equilibria competitors win (only) inclusion as promotion candidates. We find empirical justification for such equilibria in Chinese province heads' periodic political tournaments/elections for promotion to the Communist Party politburo and government positions. We document pervasive tournament-synchronized corporate decision-making cyclicality. Firms enhance economic performance by increasing investments, taxes, and employment before elections. Cyclicality is dominantly driven by privately-owned enterprises, is weaker in economically/politically weak(strong) provinces. Political promotions, however, are not sensitive to corporate investments enhanced before tournaments but to long-run investments.

Keywords: Participation/inclusion games; Politically motivated corporate decisions; Corporate investments; Taxes; Agency; China (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:67:y:2021:i:c:s0929119921000031

DOI: 10.1016/j.jcorpfin.2021.101883

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