Essays on the effects of business-government connection on strategic decisions

Abstract

Despite extensive interests in nonmarket strategy, not much attention has been paid to the relationship between corporate political connection and firm’s strategic decisions such as corporate philanthropy, R&D intensity, and tax avoidance. This dissertation consists of three essays. The first essay shows that corporate philanthropy increased among businessmen with strong political connections as corporate donations were considered as a means to shape favorable business environments and policies. In order to maintain and strengthen political ties, firms actively engaged in corporate philanthropy. The second essay suggests political connection as a moderating factor for R&D intensity representing searching behavior of firm. This essay proposes how the level of political connections of CEO and the political assets of outside directors affect their decision making for R&D investment when firm performance is below aspiration levels. Moreover, this essay analyzes how such impacts are different between affiliated and non-affiliated firms. The third essay solidified the positive relationship between political connection and tax avoidance. CEOs that are well connected to politicians through educational and family ties, tend to take riskier strategic choices such as tax avoidance. This dissertation analyzes these three points by using unique panel date set of firms listed on Korean stock exchanges from 2003 to 2014