Research Articles
CAPE supports researchers in their examination of the political economy of finance. Here's a listing of published, supported research.
When foreign state-owned enterprises (SOE) enter the United States (US) market by acquiring domestic targets, they increase competition in the targeted industry and pressure domestic competitors. Competitors should respond to such acquisitions by changing their behavior. Using acquisition data from 2010 to 2018, we examine the impact of acquisitions by foreign SOEs on the US competitors of acquisition targets. We analyze the initial response to acquisition announcements, the attempts of industry incumbents to increase their political connections, and the change in profitability and efficiency of such incumbents. Investors respond most negatively to SOE acquisitions when the domestic competitor is politically connected, implying such firms have the most to lose from such acquisitions. The US target firms can access resources from SOEs to offer better and cheaper products and thus increase their market share. Our analysis shows that competitors’ profitability and lobbying activity decrease while efficiency increases after SOE acquisitions. These results indicate that SOE acquisitions force domestic competitors to adapt to a changing competitive environment.
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Forthcoming in Research in Business and Finance.
Does state-level policy uncertainty (SPU) stifle firm investment? We document fresh evidence of a strong negative association between SPU and firms’ capital spending. This finding remains robust after excluding states with overrepresentation, through alternative measures of investment and SPU, as well as during low- and high-SPU periods. Furthermore, this effect is stronger for firms facing low market competition. Interestingly, however, firms intensifying lobbying efforts can maintain higher investments during policy turmoil. Additional analyses propose that the mitigating role of lobbying may be explained by the lobbying firms’ greater access to debt financing. Using matched samples based on propensity score matching (PSM) estimation ensures the empirical resilience of these findings.
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Alam, Ahmed W., Ashupta Farjana, and Reza Houston. "Firm investment steering through state-level policy uncertainty." Finance Research Letters 58 (2023): 104470.