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Policy Uncertainty and the Dual Role of Corporate Political Strategies
Author(s) -
Kim Chansog Francis,
Kim Incheol,
Pantzalis Christos,
Park Jung Chul
Publication year - 2018
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12226
Subject(s) - legislature , politics , value (mathematics) , business , dual (grammatical number) , enterprise value , political risk , economics , public economics , industrial organization , market economy , accounting , political science , law , art , literature , machine learning , computer science
Firms use active political strategies not only to mitigate uncertainty emanating from legislative activity, but also to enhance their growth opportunities. We find that a firm's systematic risk (beta) can be hedged away by employing various political strategies involving the presence of former politicians on corporate boards of directors, contributions to political campaigns, and corporate lobbying activities. The hedging effect is greater when firms operate in more uncertain industries. In addition, active political strategies are associated with greater firm heterogeneity and make real options more value relevant as potential drivers of competitive advantages in uncertain environments.