Managing Policy Reversals: Consequences for Firm Performance

Daniel J. Blake () and Srividya Jandhyala ()
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Daniel J. Blake: IE Business School, IE University, 28006 Madrid, Spain
Srividya Jandhyala: ESSEC Business School, Singapore 139408

Strategy Science, 2019, vol. 4, issue 2, 111-128

Abstract: The recent revival of populism and nationalism across many parts of the world threatens to unravel the market-oriented reforms of the previous era. We examine the impact of the reversal of a previously adopted market-expanding policy on organizational performance. We argue that these policy reversals are contested; affected firms undertake a broad range of political and nonmarket activities to alter the implementation of the policy and buffer themselves from adverse consequences. However, these activities can increase policy uncertainty while making new demands on management, leading to diminished investment and a reallocation of finite managerial resources. The result is that firm performance on operational parameters suffers, including in locations that are not directly affected by the policy reversal. To empirically isolate this effect, we exploit an unexpected policy reversal in the context of telecommunications firms in India. Through an example caselet, we first outline the political and nonmarket activities of one firm affected by the unexpected policy reversal. We then empirically examine the performance of affected and unaffected telecommunication firms using a difference-in-differences approach to provide support for our arguments.

Keywords: policy reversal; political risk; nonmarket strategy; operational performance; managerial resources; telecommunications (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:orstsc:v:4:y:2019:i:2:p:111-128

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