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Unpacking firm effects: modeling political alliances in variance decomposition of firm performance in turbulent environments

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  • Rodrigo Bandeira de Mello
  • Rosilene Marcon

Abstract

In this paper, firm heterogeneity in turbulent environments is addressed. It is argued that previous studies have not taken into account effects of a turbulent environment, like the Brazilian context, in which firms must face a weak and erratic government. In such an environment, the large portion of variance usually attributed to firm effects may be explained, not by the usual assumptions of mainstream scholars, but by a more political view of firm differences, namely, the ability to manage valuable political alliances. To account for these differences, a multivariate performance measure was construed and a new factor, politics effects, has been introduced to the usual model. Company donations for campaign funds in elections was used as a proxy for this factor. A sample of 607 observations, of 177 firms in 15 sectors was used. Results suggest that the presence of politics effects were found to be not significant (using COV and Hierarchical ANOVA). However, different from previous studies, transient industry effects appear to be more important than stable effects. Findings also indicate that a better model specification for turbulent environments is needed and highlight the importance of the cost of capital.

Suggested Citation

  • Rodrigo Bandeira de Mello & Rosilene Marcon, 2005. "Unpacking firm effects: modeling political alliances in variance decomposition of firm performance in turbulent environments," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 9(spe1), pages 65-85.
  • Handle: RePEc:abg:anprac:v:9:y:2005:i:spe1:421
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    File URL: https://rac.anpad.org.br/index.php/rac/article/view/421/419
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    File URL: https://rac.anpad.org.br/index.php/rac/article/download/421/419
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    References listed on IDEAS

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    1. ANITA M. McGAHAN & MICHAEL E. PORTER, 1997. "How Much Does Industry Matter, Really?," Strategic Management Journal, Wiley Blackwell, vol. 18(S1), pages 15-30, July.
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    2. Brollo, Fernanda & Troiano, Ugo, 2016. "What happens when a woman wins an election? Evidence from close races in Brazil," Journal of Development Economics, Elsevier, vol. 122(C), pages 28-45.
    3. de Souza Filho, Hildo Meirelles & Carrer, Marcelo José & Saes, Maria Sylvia Macchione & Gomes, Leonardo Augusto de Vasconcelos & Nicolella, Alexandre Chibebe, 2019. "Performance heterogeneity and strategic orientation: An analysis of small farmers of an agrarian reform project in Brazil," Land Use Policy, Elsevier, vol. 86(C), pages 23-30.
    4. Duarte, André Luís de C. Moura & DiSerio, Luiz Carlos & Brito, Luiz Artur L., 2009. "Operational Practices and Performance: An Empirical Analysis of Brazilian Manufacturing Companies," Insper Working Papers wpe_172, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    5. Jaison Caetano da Silva & Wlamir Gonçalves Xavier & Cinara Gambirage & Silvio Parodi Oliveira Camilo, 2018. "The Influence of Political Connections on the Cost of Capital and the Performance of Companies Listed on B3," Brazilian Business Review, Fucape Business School, vol. 15(4), pages 317-330, July.
    6. Lazzarini, Sergio G. & Musacchio, Aldo & Bandeira-de-Mello, Rodrigo & Marcon, Rosilene, 2015. "What Do State-Owned Development Banks Do? Evidence from BNDES, 2002–09," World Development, Elsevier, vol. 66(C), pages 237-253.

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