Local soldier fatalities and war profiteers: New tests of the political cost hypothesis

Boland, Matthew; Godsell, David

doi:10.1016/j.jacceco.2020.101316

Cited by 33 publications

(8 citation statements)

References 83 publications

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“…These results are consistent with our hypothesis that investment efficiency is increasing with IROs' market intelligence collection 17 Recent literature has extensively employed entropy balancing to address selection bias and covariate balance concerns. See, for example, Godsell (2022), Boland and Godsell (2020) T A B L E 5 IRO time across capital market participants.…”

Section: Market Intelligence Collectionmentioning

confidence: 99%

Investor relations and investment efficiency

Godsell

Jung

Mescall

2023

Contemporary Accting Res

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A rich literature suggests that investor relations officers (IROs) fulfill a one‐way information intermediary role by transmitting firm information to investors. We advance this literature with empirical evidence suggesting IROs are two‐way information intermediaries who also return investment efficiency‐increasing investor feedback to firm insiders. Exploiting granular investor relations activity data for 1,375 global firms, we document that firm investment efficiency is higher when IROs spend more time with existing institutional investors, conduct more institutional investor outreach, and meet more often with investment professionals (market intelligence collection), and when IROs transmit investment community feedback to board directors (market intelligence circulation). We mitigate endogeneity concerns stemming from our association tests by employing an expansive suite of control variables, a high‐dimensional fixed‐effects structure, an entropy‐balanced estimation sample, and an instrumental variables analysis. Our evidence supports theory predicting that managers learn about investment opportunities and their costs and benefits from investors and informs a literature predominantly characterizing IROs as one‐way information intermediaries.

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Section: Market Intelligence Collectionmentioning

confidence: 99%

Investor relations and investment efficiency

Godsell

Jung

Mescall

2023

Contemporary Accting Res

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“…Investors view political costs as an additional risk factor, often demanding a premium to offset uncertainties like those associated with stringent political oversight, which can cloud future cash flow projections (Craig & Hadley, 2020). For instance, politically sensitive firms bear additional costs – be they excess federal taxation (Mills et al., 2013), self‐imposed CEO compensation caps (Hadley, 2019), profit recognition avoidance during high‐risk periods (Boland & Godsell, 2020) or overspending (Redmayne et al., 2010) – to safeguard government contract revenues. These firms often do not reap extra benefits, merely maintaining their current revenue streams and thereby incurring what is termed a ‘political cost’ (Craig & Hadley, 2020).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Corporate transparency among government suppliers: Implications for firm valuation

Esqueda,

Ngo

2023

Accounting & Finance

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Corporate transparency has a positive impact on firm valuation, as predicted by agency theory; however, the transparency of strategically important government suppliers is not rewarded with higher valuations as the market expects politically sensitive firms to be inherently more transparent. The association between transparency and valuation among politically sensitive firms is consistent with the political cost hypothesis. We address endogeneity concerns using propensity score matching, Heckman's self‐selection models and entropy balancing. Our findings offer novel insights, suggesting that the influence of transparency on corporate valuation varies with political sensitivity – a significant consideration for both finance professionals and scholars.

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“…At a conceptual level, Hasan et al (2021) examine whether subsidiary country risk of expropriation affects the pricing of earnings reported by foreign subsidiaries. Empirically, however, Hasan et al (2021) measure: (i) subsidiary country risk of expropriation using a proxy for the strength of contract viability; and (ii) investors' reliance on foreign subsidiary 1 For a recent study that provides a novel test of the political cost hypothesis, see Boland and Godsell (2020). 2 Prior studies (e.g., Dyreng et al, 2012;Beaver et al, 2019;Beuselinck et al, 2019) show that within-MNC factors influence several subsidiary-level decisions, including financial reporting choices.…”

Section: Empirical Challengesmentioning

confidence: 99%

Discussion of: The State Expropriation Risk and the Pricing of Foreign Earnings

Cascino

2021

Journal of International Accounting Research

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Local soldier fatalities and war profiteers: New tests of the political cost hypothesis

Cited by 33 publications

References 83 publications

Investor relations and investment efficiency

Investor relations and investment efficiency

Corporate transparency among government suppliers: Implications for firm valuation

Discussion of: The State Expropriation Risk and the Pricing of Foreign Earnings

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