Philip L. Hersch

Bio: Philip L. Hersch is an academic researcher from Wichita State University. The author has contributed to research in topics: Voting & Equity (finance). The author has an hindex of 14, co-authored 32 publications receiving 1423 citations.

Do Campaign Contributions and Lobbying Expenditures by Firms Create “Political” Capital?

Abstract: We examine the relation between a firm’s campaign contributions and lobbying expenditures and its Tobin’s q. We follow other studies that use q to measure the value of the firm’s intangible capital (e.g., the value of advertising, R&D, or environmental performance). Researchers have found a positive and significant relation between intangible assets and q. If political capital exists, it is an intangible asset. However, we find little relation between q and political contributions, suggesting that campaign contributions may not have long term effects on political markets. This is consistent with the view that contributions are done by firms as a response to a short term opportunity not as a way of building long-term political capital.

Determinants of automobile PAC contributions to house incumbents: Own versus rival effects *

Abstract: This paper examines PAC contributions by the Big ThreeU.S. automakers and Japanese auto dealers to Houseincumbents. A regression model is estimated where PACcontributions are a function of a firm's own ties toan incumbent's district (as measured by firmemployment) and those of rivals. For the Big Three,own and U.S. rival effects are positive. Further, theresults do not indicate the presence of a free-ridereffect. Employment by a foreign subsidiary has no neteffect on U.S. contributions. For the Japanesedealers, Japanese plant employment has a positiveimpact on contributions, and that of the Big Three anegative.

Campaign war chests as a barrier to entry in congressional races

Abstract: I. INTRODUCTION Issues surrounding the nature and degree of competition in political races have been examined extensively in both the economic and political science literature, with most attention focused on the interplay between incumbent and challenger expenditures and electoral success. This study extends our understanding of political competition by investigating the impact of an incumbent's war chest on a challenger's decision to mount a campaign.(1) For this purpose, a war chest is defined as a pool of unencumbered funds, accumulated prior to the start of a campaign for elective office.(2) Sorauf [1988, 182] has observed that "early receipts, even without early spending, discourage competition in the primary and attractive challengers in the general election." Jacobson [1985, 26] has argued "the most effective strategy for keeping a seat in Congress is to avoid serious opposition." Contemporary critics and reformers of campaign financing practices use such words as frighten, intimidate, and overpower to describe the role of an incumbent's war chest.(3) Despite this kind of attention, little is actually known about the degree to which war chests diminish entry or reduce the quality of a challenge. We present three alternative mechanisms to explain how an incumbent's war chest might deter entry. Each is based upon a war chest serving as a credible commitment to spend heavily if challenged. Specifically, war chests may either represent excess capacity in financing a campaign or serve as a signal of non-observable incumbent characteristics that define a formidable opponent. Aside from determining whether an incumbent is challenged, a war chest might also affect the quality of the challenger. For example, potential candidates with prior political experience may be unwilling to risk their political capital on a long-shot proposition. To test for these effects on entry into House races, a trichotomous logit model is estimated. The choices are uncontested race, contested by an ordinary challenger and contested by an experienced challenger. Although the empirical model is not sufficiently rich to fully distinguish among competing mechanisms, the regression results are robust: incumbent war chests negatively affect the likelihood of a contested race and the quality of the challenger. II. WAR CHESTS AS A BARRIER TO ENTRY Becker [1958, 106], in comparing economic and political competition, observed, "[I]n an ideal political democracy competition is free in the sense that no appreciable costs or artificial barriers prevent an individual from running for office..." In the theory of the firm, entry occurs when the expected postentry stream of profits minus the cost of entry is positive. Analogously, an individual will enter a political race when the expected gain from holding office is positive. Expected gain, as defined by Baron [1989], is a function of campaign costs, the probability of winning, and the personal valuation placed by the candidate on the office. The first two determinants are partly endogenous, depending upon the strategic interplay of the candidates. The third, aside from its direct effects, indirectly affects the first two. For example, persons "hungry for office" may be committed to expending greater effort and funds on their campaigns, thus increasing their probability of winning. Similarly, as Lott has emphasized, nontransferable brand-name capital would be another factor creating a commitment to aggressively pursue office, thereby affecting campaign costs and the probability of winning.(4) That some challengers are deterred, however, need not imply the existence of a political market failure. In a contestability sense, the lack of a viable challenger on the ballot does not imply a lack of competition. Good representation will discourage entry. Similarly, the fact that some incumbents will aggressively seek re-election, frightening away potential challengers, is not a sign that competition is lacking. …

From State to Market: A Survey of Empirical Studies on Privatization

Abstract: This study surveys the literature examining the privatization of state-owned enterprises (SOEs) We review the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types of privatization, if and by how much privatization has improved the performance of former SOEs in non-transition and transition countries, how investors in privatizations have fared, and the impact of privatization on the development of capital markets and corporate governance. In most settings privatization "works" in that the firms become more efficient, more profitable, and financially healthier, and reward investors.

Gender Diversity in the Boardroom and Firm Financial Performance

Abstract: The monitoring role performed by the board of directors is an important corporate governance control mechanism, especially in countries where external mechanisms are less well developed. The gender composition of the board can affect the quality of this monitoring role and thus the financial performance of the firm. This is part of the “business case” for female participation on boards, though arguments may also be framed in terms of ethical considerations. While the issue of board gender diversity has attracted growing research interest in recent years, most empirical results are based on U.S. data. This article adds to a growing number of non-U.S. studies by investigating the link between the gender diversity of the board and firm financial performance in Spain, a country which historically has had minimal female participation in the workforce, but which has now introduced legislation to improve equality of opportunities. We investigate the topic using panel data analysis and find that gender diversity – as measured by the percentage of women on the board and by the Blau and Shannon indices – has a positive effect on firm value and that the opposite causal relationship is not significant. Our study suggests that investors in Spain do not penalise firms which increase their female board membership and that greater gender diversity may generate economic gains.

Women in the Boardroom and Their Impact on Governance and Performance

Abstract: We show that female directors have a significant impact on board inputs and firm outcomes. In a sample of US firms, we find that female directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. These results suggest that gender-diverse boards allocate more effort to monitoring. Accordingly, we find that CEO turnover is more sensitive to stock performance and directors receive more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses. Our results suggest that mandating gender quotas for directors can reduce firm value for well-governed firms.

The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey

Abstract: This paper is a survey of the literature on boards of directors, with an emphasis on research done subsequent to the Benjamin E. Hermalin and Michael S. Weisbach (2003) survey. The two questions most asked about boards are what determines their makeup and what determines their actions? These questions are fundamentally intertwined, which complicates the study of boards because makeup and actions are jointly endogenous. A focus of this survey is how the literature, theoretical as well as empirical, deals—or on occasions fails to deal—with this complication. We suggest that many studies of boards can best be interpreted as joint statements about both the director-selection process and the effect of board composition on board actions and firm performance. ( JEL G34, L25)