The interplay of affirmative action and entrepreneurial culture: Understanding institutional privilege and exclusion in Malaysia

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The International Journal of Entrepreneurship and Innovation, Ahead of Print.
The aim of this article is to examine how enterprise policies aimed at supporting ethnic groups influence entrepreneurial activity. Drawing on qualitative interviews with entrepreneurs and policymakers in the emerging economy of Malaysia, we show that policy intended to close interethnic gaps in entrepreneurial activity instead serves to increase differences. Parallel institutional environments are formed through socially negotiated accomplishments and are influenced by institutional antecedents including affirmative action policy. These conditions created advantages (institutional privilege) for the targeted population but disadvantages (institutional exclusion) for those who are not targeted in the preferential policies. Tensions between privilege and exclusion impact on entrepreneurial activity, increasing inequalities of different parties. The article provides a number of theoretical contributions and practical implications for policy.

Does Firm‐level Political Uncertainty Affect the Mispricing of Earnings? A Natural Experiment through Government‐to‐business Revolving Door

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We utilize a unique setting associated with the mandatory closure of the government-to-business revolving door to examine whether and how an exogenous rise in firm-level political uncertainty affects the mispricing of earnings. The tension that underlies our study stems from two opposing effects. To the extent that such uncertainty can trigger opinion divergence (rational attention) among investors, it is expected to delay (accelerate) price discovery and increase (decrease) security mispricing. Our identification strategy draws on the difference-in-differences analysis associated with the Chinese regulation in 2013 that mandated the resignation of corporate independent directors with a government background. Consistent with the dominance of the opinion divergence effect, we observe that these involuntary resignations unintentionally increase delays in share price responses following earnings announcements. These findings are more evident among firms that enjoy more benefits from independent directors with a government background. Further analyses confirm that these involuntary resignations trigger more opinion divergence rather than rational attention among investors by showing significant increases in analyst forecast diversity but no changes in analyst coverage following such resignations. We provide novel evidence that market information efficiency could deteriorate as an unintended consequence of the escalation of firm-level political uncertainty.

Negative Incentives and Regulatory Capture: Noncompliance with Price Ceilings on Essential Medicines in India

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Abstract

Nonmarket scholars have paid limited attention to noncompliance as an alternative strategy to capture regulators; yet noncompliance is particularly consequential given its potentially significant negative externalities. We exploit rich data on price ceilings introduced in India in 2013 on 255 essential medicines to test whether noncompliance by other firms drives the focal firm's noncompliance decision. Our results indicate that noncompliance by other firms, particularly those with larger products in the market, is positively associated with a focal firm's noncompliance. The focal firm's scope and sales positively moderate this relationship. Overall, our study indicates that firms are more likely conclude that the potential benefits of regulatory capture using negative incentives outweigh the potential financial and social costs in the presence of a greater number of firms that are already noncompliant. As such, our study draws attention to negative incentives as an important yet largely overlooked nonmarket strategy.

Can Corporate Social Responsibility Lead to Social License? A Sentiment and Emotion Analysis

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Abstract

The term social license (SL) refers to the acceptance or approval by a community of a company's presence. It is generally assumed in the literature that effective corporate social responsibility (CSR) actions will lead to an SL. In this study we examine the CSR-SL relationship at the local community level and establish boundary conditions on the effectiveness of local CSR in creating an SL. Using consent-based micro-social contract theory, we theorize that commitment to local CSR improves the level to which a local community grants an SL to a multinational corporation (MNC), but the impact is moderated by the global legitimacy of the parent company, the nature of institutions in the host country, and the degree of polarization within the focal community. Based on 3696 articles regarding 43 global mining MNCs operating in 523 local communities between 2008 and 2020, we use natural language processing and sentiment analysis to evaluate the degree to which a local community grants an SL. Our empirical evidence indicates that local CSR does positively influence the granting of an SL, but the effect is reduced when there is strong rule of law or high community polarization and increased when the focal firm has strong global legitimacy.

Corporate Political Activities and the SEC’s Oversight Role in the IPO Process

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Abstract

We study how a regulator (Securities and Exchanges Commission; SEC) responds to IPOs that have a higher political profile. We find that IPOs with issuers (intermediaries) that actively pursue political strategies receive more (less) SEC comment letters than IPOs without such actors. Cross-sectional analysis reveals that the IPO's political environment moderates the relationship between social pressure for more corporate transparency and SEC scrutiny. Additional tests indicate that the political activities of issuers (intermediaries) contribute to a less (more) efficient IPO process. Overall, our findings suggest that politically active intermediaries have stronger incentives to accurately portray the IPO financial reporting environment than politically active issuers because they have greater reputational and political capital at stake; quite simply, the former have more to lose. We draw out the implications for theory, in terms of agency and reputation.