Windfalls of Emperors' Sojourns: Stock Market Reactions to Chinese Firms Hosting High-Ranking Government Officials
2017 · Published in Strategic Management Journal 38(8): 1668–1687 · DOI 10.1002/smj.2622
In one sentence
Investors react positively when Chinese firms host visits by the President or Premier, especially private firms and firms with weaker prior performance.
Summary
The paper contributes to research on corporate political activity by showing that investors value firms that host visits by China’s President or Premier. Investors may value such visits because they signal future access to government-controlled resources and because high-ranking visitors certify the firm’s reputation and legitimacy. An event study of 84 such visits from 2003 to 2011 shows positive stock-market reactions for host firms relative to comparable non-host firms in the same industry. The largest reactions are for firms with weaker prior financial performance and for private rather than state-controlled firms.
Abstract as published
We contribute to the corporate political activity (CPA) literature by showing that investors value companies that host visits of high‐ranking government officials (President and Premier). We argue that investors may value host official visits for two reasons: (1) the signal received about possibility of firm accessing government‐controlled resources via promotion or protection; and (2) the certification effect from such high‐powered visitors elevating the firm's reputation and legitimacy. Results from an event study analysis of 84 high‐ranking government official visits in China from 2003 to 2011 indicate that investors responded positively to host firms as reflected by stock market performance. Furthermore, the greatest positive reactions accrued to firms experiencing weaker prior period financial performance and to firms that are privately compared to state‐controlled.
Citation
Douglas A. Schuler, Wei Shi, Robert E. Hoskisson, Tao Chen (2017). Windfalls of emperors' sojourns: Stock market reactions to Chinese firms hosting high‐ranking government officials. Strategic Management Journal, 38(8), 1668–1687. https://doi.org/10.1002/smj.2622
BibTeX
@article{schuler2017windfalls,
title = {{Windfalls of emperors' sojourns: Stock market reactions to Chinese firms hosting high‐ranking government officials}},
author = {Douglas A. Schuler and Wei Shi and Robert E. Hoskisson and Tao Chen},
journal = {Strategic Management Journal},
year = {2017},
volume = {38},
number = {8},
pages = {1668--1687},
doi = {10.1002/smj.2622}
}