Research in Progress
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 investors. This article advances an alternative view that emphasizes the positive effects of low asset mobility. I argue that governments prefer foreign firms with immobile assets because their commitment to stay is always more credible. A formal model is presented to illustrate three crucial theoretical mechanisms: 1) the inverse credible commitment problem, 2) political concerns associated with firm performance, and 3) the intense competition for investments. Then, I substantiate the theoretical predictions using data from China. Leveraging a policy change in enterprise income taxes in 2008, I use a difference in differences design to show that foreign firms with lower asset mobility are less likely to become targets of local governments' predatory behaviors.
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 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.
Measuring Regulatory Barriers Using Annual Reports of Firms
Existing studies show that regulations are one of the significant barriers to the global economy. Nonetheless, identifying and measuring regulatory barriers remains a challenging task for scholars. I propose a novel approach to quantify the level of regulatory barriers at the industry level. Utilizing information from annual reports of publicly listed companies in the U.S., I can identify regulatory barriers encountered by business practitioners worldwide. The reported barriers are identified by first using a cutting-edge neural language model trained on a hand-coded training set. The final prediction accuracy on the test set is around 90%. Then, I use a dynamic item response theory model to estimate major industries' barrier levels in 45 countries while controlling various confounding channels. The estimated barrier level returned by this approach should be much less likely to be contaminated by unobserved confounders such as WTO politics. Therefore, it is well-suited for future political science research.