Experience level: 
Intermediate
Intended Audience: 
All
Authors: 
Itzel PALOMARES-AGUIRRE

IN THE FOREGROUND OR IN THE BACKGROUND? INFLUENCE PAYMENTS AMONG FIRMS IN THE MEXICAN STOCK EXCHANGE

Firms in emerging markets rely not only on their market strategies but on their relationships with government officials in order to advance their objectives by shaping the context in these markets characterized by weak institutions. In this study the premise is that firms that support candidates running for office will receive some benefit, which will be reflected in their financial performance. However, we hypothesize that influence payments have two ways of being conducted with different results: in the foreground are those donations given to political parties which are recorded and monitored by the authorities. In the background are questionable payments such as bribes, which are hidden from the public eye but will leave a mark on the firm’s financial statement. For testing the differences between both strategies, we analyzed the firms listed in the Mexican Stock Exchange during the 2006 presidential election, which was characterized by high uncertainty. Results show that 1) in the foreground there is a mediation mechanism between political donation and firm performance consisting of the firm’s power in the network of board interlocks and 2) there is a negative direct effect on financial performance for firms who donated in the background. These results help advance our understanding of political strategies in emerging markets.