University of Southern Mississippi
Department of Management
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1. Identify and define and explain the factor
What is a corporation’s political affiliation? Peng Luo defines a corporation’s political affiliation as the relationship between corporate executives and government officials. Johnson and Mitton’s research on corporation affiliation defined it as the relationship between a corporation or shareholder and important government positions such as Prime Minister, Deputy
Prime Minister, Minister of Finance, etc. Faccio extends his definition to also include individuals working in the corporate world who are related to, and therefore influence government officials. Bertland asserts that companies with CEOs or CFOs who used to work in the government also have political affiliation by default. Though scholars have different views about what defines political affiliation, they all have following in common:
1. The political relationship could be led by the government, or by an enterprise who established a relationship with government initially.
2. A political relationship constitutes the relationship between government officials or major shareholders and government officials, but may also include personal relatives of either; the former is dominant, and the latter invisible.
3. Corporate political relations constitutes a resource. Because the government controls a lot of resources, especially the monopoly of resources (such as financial resources, industry access permits, government orders, and government assistance, etc.), in accordance with the resource dependency theory, companies will have a dependency on these resources,
M. W. Peng &Y. Lou, Managerial Ties and Firm Performance in a Transition Economy: The Nature of a
Academy of Management Journal Economics
, Vol. 67, No.2, 2003, pp351382
S. John &T. Mitton, Cronyism and Capital Control: Evidence from Malaysia, Journal of Financial
, Vol. 67, No. 2, 2003, pp. 351382.
and may establish a political and government relationships to get more resources.
Therefore, political relationships also constitute a resource.
4. The regression coefficients of corporate political relationships with total debt ratio, longterm debt are significant, showing that political relationships can help and/or hurt companies’ enterprise value, internal control, financing, taxation, government subsidies, and other aspects. A political relationship has no significant influence to ownership contribution, but has a certain positive correlation to stock shares.
In empirical research scholars found political relations and corporate literature relevant. Fisman, when studying US Vice President Dick Cheney’s role in corporate political relations, found that
Cheney's actions affected companies’ stock prices, but had no bearing on their performance.
Prior to his presidency, President Eisenhower served as the president of Columbia University a position he owed in part to Thomas J. Watson’s support. Watson later served as CEO of IBM, and during President Eisenhower’s campaign, initiated a drive (alongside the Rockefellers) to provide campaign funds and other support for Eisenhower. This established a precedent of
IBM’s CEOs maintaining close relationships with successive administrations, allowing IBM to obtain unparalleled strength.
2. Explain how the factor has posed problems for firms in general
IBM dominated the computer industry in the 1960s. In 1969, IBM received its first lawsuit. This antitrust case began in 1969. This year, the government proposed lawsuit against IBM for
"attempting to monopolize, and having a monopoly on general purpose digital computers," thus violating the "Sherman Act "Article. The government believed that IBM in controlled 76 percent