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Curses or Blessings: How Low Asset Mobility Helps Foreign Firms Gain Government Support
Low asset mobility is often seen as undermining the bargaining power of foreign investors. This article advances an alternative view that emphasizes the positive effects of low asset mobility. I argue that governments favor foreign firms with lower mobility because their commitment to stay is always more credible. I present a formal model to illustrate how (1) governments’ preference for economic gains and (2) investment competition intensity determine the political effect of asset mobility. I empirically evaluated my theoretical predictions using two studies in China. First, leveraging a change in enterprise income tax law in 2008, I used a difference-in-differences design to examine the effect of ex post asset mobility on government treatment. Second, I fielded an original survey of foreign firms’ employees in China to test the theoretical mechanisms. My findings suggest that, on average, governments favor immobile foreign firms over their mobile peers. This study showed that the role of asset mobility in government–investor bargaining is more nuanced in this era of globalization.
Strategic Asset Mobility: How Foreign Firms Use Asset Mobility to Manage Political Risk
In this paper, I show that foreign firms can strategically alter their asset mobility in response to different levels of political risk. I argue that asset mobility is determined by industry characteristics and firms' political concerns. In countries with high political risk, to obtain government support foreign investors may prefer low asset mobility over high asset mobility. I substantiate my theory using firm-level data from 47 countries and a survey fielded among foreign firms' managers in China. The findings from firm-level data confirm that foreign firms with lower mobility receive better government treatment in countries with high political risk. Then, using the survey data from China, I show how foreign firms strategically choose asset mobility levels. My theory and findings make important contributions to our knowledge of the challenges to the current world order, as I shed light on how countries with inadequate property rights protection can still attract long-term investment from foreign investors.
Measuring Regulatory Barriers Using Annual Reports of Firms
Existing studies show that regulation is a major barrier to global economic integration. Nonetheless, identifying and measuring regulatory barriers remains a challenging task for scholars. I propose a novel approach to quantify regulatory barriers at the country-year level. Utilizing information from annual reports of publicly listed companies in the U.S., I identify regulatory barriers business practitioners encounter. The barrier information is first extracted from the text documents by a cutting-edge neural language model trained on a hand-coded training set. Then, I feed the extracted barrier information into a dynamic item response theory model to estimate the numerical barrier level of 40 countries between 2006 and 2015 while controlling for various channels of confounding. I argue that the results returned by this approach should be less likely to be contaminated by major confounders such as international politics. Thus, they are well-suited for future political science research.
Strange Bedfellows: When Foreign Firms Participate in Standards Setting in Host Countries
Haosen Ge; Jian Xu
This paper examines an understudied phenomenon where foreign firms capture the regulatory outcomes in host countries. We argue that foreign firms can capture industry standards in host countries if the foreign-firm-captured outcomes are preferred by politically connected domestic firms. Foreign firms with competitive advantages in technological expertise can be asked to draft regulations that impose additional barriers on other domestic firms. However, the increased barriers impose differential costs on connected versus non-connected domestic firms, as the connected firms have various means to offset the adjustment costs while the non-connected firms which lack government support are forced to exit the market. As a result, politically connected domestic firms sometimes prefer colluding with foreign firms to introduce exclusionary regulations that increase industry concentration and deter new entrants. We propose a model of Cournot competition to formally show the underlying mechanisms. Then, we use an original database on foreign firms' participation in industry standards-setting in China to conduct a series of empirical tests that provide robust support for our theory. Our findings contribute to the existing literature by 1) showing how politically weak groups can capture policy outcomes and 2) empirically showing how governments incorporate positions of different firms into policy outcomes.
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