Paul M. Vaaler

Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries

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. This study investigates the impact of developing country electoral politics on private, often foreign-based financial actors making decisions about risks associated with lending and investment. We ground our approach in the theory of political business cycles (“PBCs”), which, following from the seminal papers of Nordhaus (1975) and Hibbs (1977), models interactions between domestic political incumbents and voters. We extend the empirical domain of both opportunistic and partisan PBC theories to consider the election-period reactions of international credit rating agencies (“agencies”) to potential PBC-style behavior by incumbents. Sovereign risk ratings (“ratings”) published by agencies play a critical role in conditioning the cost and availability of capital for lending and investment in developing countries. Agencies facilitate credit transactions for developing country borrowers by publishing lettergrade ratings, commonly relied on by capital market participants to assess both the specific capability and willingness of governments to honor their debts, and more general risks associated with lending and investment in the locale. Our study investigates whether these agencies also “vote” during election periods based on opportunistic or partisan PBC considerations. Their votes are in the form of election-year ratings. Opportunistic PBC considerations suggest that agencies are more likely to downgrade developing country sovereign ratings in election years, due to general concern that incumbents will implement spending sprees beneficial to garner

Are Technology-Intensive Industries More Dynamically Competitive? No and Yes

A substantial body of research in management and related public policy fields concludes that recent decades saw greater dynamic competition throughout technology-intensive (TI) industries, with widespread steady increase in TI industry and business performance instability as key implications. We set this conclusion within a broader framework of purportedly increasing dynamic competition among TI industry businesses, and then test for evidence of its performance implications in a large sample of U.S. businesses operating from 1978 to 1997 in 31 industries, with high average research and development expenditure-to-sales ratios. In the full sample, we find no evidence of sustained increase in TI industry and business performance instability, nor any evidence of significant cross-sectional differences in performance instability between TI and non-TI industry businesses over these 20 years. For a small segment of very high-performing businesses from TI industries, however, we do uncover evidence of declining performance stability and cross-sectional differences in performance stability. We conclude that assumptions of widespread long-term increase in dynamic competition lack robust evidentiary support. It is premature to embrace and apply broadly new theoretical perspectives, management practices, and public policies to TI industry competitive dynamics that may be slightly changed since the late 1970s. Yet, there may be increasing dynamic competition among very high-performing TI industry businesses. In that small realm, careful application of new perspectives, practices, and policies may lead to deeper insight on business behavior and performance in TI industries.

Explaining the rise of diaspora institutions

ABSTRACT Origin-state institutions dedicated to emigrants and their descendants have been largely unnoticed by mainstream political studies even though diaspora institutions are now found in over half the countries of the world. In response, we first develop alternative theories explaining diaspora institution emergence. They emerge to: ‘tap’ diasporas for resources vital to origin-state development and security; ‘embrace’ diasporas to help define origin-state political identity and achieve domestic political goals; or ‘govern’ diasporas in ways that demonstrate origin-state adherence to global norms. Second, we investigate empirical support for these tapping, embracing and governing explanations in regression and related analyses of diaspora institution emergence in 113 origin states observed from 1992 to 2012. Findings suggest support for all three perspectives with more robust evidentiary support for governing. Our analyses suggest several directions for future research on how and why diaspora institutions emerge for different origin-state purposes.

Chandler's Living History: The Visible Hand of Vertical Integration in Nineteenth Century America Viewed Under a Twenty‐First Century Transaction Costs Economics Lens

Alfred Chandlers recent passing is cause to review and celebrate his many contributions to business history. It also presents an opportunity to highlight links between his rich historical analyses concerning organizational and industrial innovation and contemporary management studies of the firm and industrial organization. We illustrate this point by applying transaction costs theory to several case studies from his 1977 masterwork narrating the emergence of vertically-integrated firms in nineteenth-century America, The Visible Hand. Vertical integration, organizational control, and innovation in manufacturing at McCormick Harvester and Singer Sewing Machines, and in transportation and distribution at Swift and United Fruit reflect managerial responses to classic transaction costs considerations including commercial relationships requiring the creation of specialized equipment and knowledge. Transaction costs analysis provides complementary historical insight on organizational innovation at these and other firms in the nineteenth century, and suggests when and where we might expect vertical integration strategies in emerging industries of the twenty-first century.

Chandler's Living History

Alfred Chandlers recent passing is cause to review and celebrate his many contributions to business history. It also presents an opportunity to highlight links between his rich historical analyses concerning organizational and industrial innovation and contemporary management studies of the firm and industrial organization. We illustrate this point by applying transaction costs theory to several case studies from his 1977 masterwork narrating the emergence of vertically-integrated firms in nineteenth-century America, The Visible Hand. Vertical integration, organizational control, and innovation in manufacturing at McCormick Harvester and Singer Sewing Machines, and in transportation and distribution at Swift and United Fruit reflect managerial responses to classic transaction costs considerations including commercial relationships requiring the creation of specialized equipment and knowledge. Transaction costs analysis provides complementary historical insight on organizational innovation at these and other firms in the nineteenth century, and suggests when and where we might expect vertical integration strategies in emerging industries of the twenty-first century.

A Descriptive Alternative to Cluster Analysis: Understanding Strategic Group Performance with Simulated Annealing

Fixed effects models featuring cluster analytical techniques underlie much of the empirical research on strategic groups and their significance in explaining performance differences among competing firms. We propose an alternative “descriptive” approach for analyzing strategic groups and their impact on firms, particularly in multi-industry research settings. Our descriptive alternative utilizes a random effects model and simulated annealing in order to avoid some of the limitations of cluster analytical approaches as well as to provide insight on the relative importance of strategic group-level factors on variance in firm returns. We demonstrate our descriptive approach with simulated annealing of data from the Federal Trade Commission’s Line of Business Program. The demonstration suggests that strategic group-level factors are important for explaining persistent differences in firm performance, but that such factors are fluid and ephemeral, rather than fixed and durable over time.

Home Country Governance Quality and the ‘Bonding’ Hypothesis

The world of multinational enterprises is changing dramatically. Their complex and dynamic international context presents them with special challenges – threatening their survival on one hand, and presenting them with unprecedented opportunities on the other. In this volume, international experts analyze different aspects of the transformations in global governance: ideological variations, trade governance, competition policy and the rise of civil society. They discuss the implications for multinational–government relations, multinationals’ self-governance, relations with NGOs and issues of competitiveness.

DEMOCRACY'S SPREAD: Elections and Sovereign Debt in Developing Countries

We use partisan and opportunistic political business cycle (???PBC???) considerations to develop and test a framework for explaining election-period changes in credit spreads for developing country sovereign bonds. Pre-election bond spread trends are significantly linked both to the partisan orientation of incumbents facing election and to expectations of incumbent victory. Bond spreads for right-wing (leftwing) incumbents increase (decrease) as the likelihood of left-wing (right-wing) challenger victory increases. For right-wing incumbent partisan and opportunistic PBC effects bondholder risk perceptions are mutually reinforcing. For left-wing incumbents partisan PBC effects dominate bondholder risk perceptions compared to opportunistic PBC effects.

How Do Plural-Sourcing Firms Make and Buy? The Impact of Supplier Portfolio Design

This paper uses the notion of contracting strategy to advance research on 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.

Democratization's Risk Premium: Partisan and Opportunistic Political Business Cycle Effects on Sovereign Ratings in Developing Countries

We use partisan and opportunistic political business cycle (???PBC???) considerations to develop a framework for explaining election-period decisions by credit rating agencies (???agencies???) publishing developing country sovereign risk-ratings (???ratings???). We test six hypotheses derived from the framework with 482 agency ratings for 19 countries holding 39 presidential elections from 1987-2000. We find that ratings are linked to the partisan orientation of incumbents facing election and to expectations of incumbent victory. Consistent with the framework, rating effects are sometimes greater for right-wing compared to left-wing incumbents, perhaps, because partisan PBC considerations with right-wing (left-wing) incumbents reinforce (counteract) opportunistic PBC considerations.