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This study examines the proposition that political business cycle theory is relevant to private foreign lenders to developing countries. We find that: credit rating agencies downgrade developing country ratings more often in election years, and do so by approximately one rating level; bond spreads are higher in the 60 days before an election compared to spreads in the 60 days after an election; spreads trend significantly downward in the 60 days before an election, but then flatten out in the 60 days after an election. Agencies and bondholders view elections negatively, increasing the cost of capital to developing democracies. #

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We question previous research assuming that privatizing firm performance generally benefits from decreasing state ownership and the passage of time, both of which purportedly align principal–agent incentives promoting organizational decision-making that increases shareholder value. When state ownership shifts from majority and controlling to minority and non-controlling, the performance impact may be positive in the short run, particularly where there is instability in the local investment policy environment. Consistent with this proposition, we develop and test hypotheses derived from a minority and non-controlling or “residual” state ownership framework, grounded in credible privatization and institutional theory. We propose that: (1) residual state ownership positively affects shareholder returns after strategic decisions by privatizing firms because it signals state support for managerial initiatives; (2) the passage of time since initial privatization negatively affects shareholder returns after strategic decisions by privatizing firms because initial undertakings in support of the privatizing firm are reversed; and (3) home-country investment policy stability moderates these two effects – greater stability obviates the need for residual state ownership, and slows policy reversals over time. We find empirical support for our residual state ownership framework in event study analyses of cumulative abnormal returns (“CARs”) associated with 196 major investments announced from 1986 to 2001 by 15 privatizing telecoms from around the world. CARs are positive at 5–25% state ownership levels but turn negative at higher state ownership levels. CARs turn sharply negative within 1–2 years from initial privatization dates. Increasing policy stability diminishes positive ownership and negative time effects on CARs. Results confirm the potential supporting role that residual state ownership can play in enhancing strategic decision-making and financial performance by privatizing firms, particularly where there is instability in the home-country investment policy environment. Journal of International Business Studies (2009) 40, 621–641. doi:10.1057/jibs.2008.104

We empirically examine whether and how opportunistic and partisan political business cycle ("PBC") considerations explain election-period decisions by credit rating agencies ("agencies") publishing developing country sovereign risk-ratings ("ratings"). Analyses of 391 agency ratings for 19 countries holding 39 presidential elections from 1987-2000, initially suggest that elections themselves prompt rating downgrades consistent with opportunistic PBC considerations, that incumbents are all likely to implement electionperiod policies detrimental to post-election creditworthiness. But more refined analyses, integrating both opportunistic and partisan PBC considerations in a unified framework, suggest that election-period agency downgrades (upgrades) are more likely as right-wing (left-wing) incumbents, become more vulnerable to ouster by challengers. Together, these results underscore the importance of integrating both opportunistic and partisan PBC considerations into any explanation of election-period risk assessments of agencies and, perhaps, other private, foreign-based financial actors important to the pricing and allocation of capital for lending and investment in the developing world.

F irms often delegate elements of strategic decisions to outside experts who promise objective assessments, which are especially valuable in unstable environments. However experts themselves may be prone to skewed decision making as the stability of their own industry environment changes and as their positioning within the industry shifts. We examine this possibility in the context of expert credit-rating agencies ("agencies") and their risk ratings of emerging-market sovereign borrowers ("ratings") published from 1987 to 1998, a period that includes both industry stability (1987-1996) and industry turbulence set off by financial crises in several emerging-market countries (1997-1998). After controlling for macroeconomic and related objective risk factors linked to the sovereigns themselves, we find several points: (1) agency ratings during crisis-induced industry turbulence are negatively skewed, indicating undue pessimism among these experts, in line with decision-making perspectives predicting negative reaction by experts in an effort to retain legitimacy with salient stakeholders, in this case, investors and public regulators; (2) this negative shift is greater for incumbent firms and regionally focused firms, possibly because of the loss of previous informational advantages; and (3) this negative shift during crisis-induced turbulence is greater as industry rivalry among these experts increases in particular market segments, possibly indicating the development of competitive bandwagons among experts. Together, our results suggest that objective assessments by expert organizations are vulnerable to substantial distortion from the confluent effects of industry instability and expert positioning within the industry, particularly positioning affecting rivalry among experts. Ironically, experts may be most likely to mislead clients in unstable industry environments when experts command greater attention and should show greater fidelity to disinterested objectivity.

2003) examined the relative impact of industry-vs. firmlevel factors shaping firm performance. They demonstrated that variance in firm performance attributable to industry-level factors increases, while variance attributable t to firm-level factors decreases when 'exceptionally' higher-and lower-performing 'outlier' firms in each industry are excluded. They concluded that previous research underestimated the relative impact of industry-level factors for 'average' firms that make up the bulk of an industry. We take issue with their methods used to identify and exclude outliers as well as their conclusions drawn from such analyses. Rather than excluding true 'outlier' firms, we argue that they incorporated an artificial restriction of within-industry sample variance that almost deterministically led to lower firm and higher industry variance component estimates. We demonstrate this point with a comparable sample of data to which we apply progressively greater restrictions on withinindustry sample variance leading to similar results. Finally, we show that exclusion of firms from a data sample based on commonly understood standards of outlier identification leads to little change in industry and firm variance component estimates compared to full-sample estimates.

This paper uses the notion of contracting strategy to advance research in plural sourcing. We develop and test a theoretical framework to explain how plural-sourcing firms strike the make-and-buy balance depending on their contracting strategy. The focal firm's choice of a contracting strategy is associated with a specific supplier portfolio design, with a bargaining-based strategy resulting in many, narrowly capable suppliers with short tenure, and a relationship-based contracting strategy resulting in fewer, broadly capable suppliers with long tenure. Focal firms with the latter strategy incur lower overall contracting costs than those with the former, and therefore outsource more. Focal firms seek to influence contracting costs associated with their supplier portfolio for "nearly the same inputs" and "nearly the same suppliers". Empirical analysis corresponding to the two levels, namely patent prosecution and legal services at Fortune 500 firms, provide consistent support for our theory.