Based on research by Douglas A. Schuler and Kathleen Rehbein

• A company’s experience and expertise don’t play much of a role in gaining entry to the halls of power.
• Whether a company would be significantly impacted by a proposed policy had little bearing on whether they’d be invited to testify about it.
• Perhaps unsurprisingly, the best predictors of political influence are lobbying and money.

Beneath the dome of the U.S. Capitol stand statues of some of most influential figures in American history: George Washington, Abraham Lincoln, Ronald Reagan, Susan B. Anthony and Martin Luther King Jr. Tourists who stroll through the rotunda, understandably, can feel a bit overwhelmed. 

These figures made a mark on history in part because they were able to push for sustained legislative initiatives. In short: They had political muscle. Rice Business Professor Douglas A. Schuler and Kathleen Rehbein of Marquette University recently sought to bring the lessons of these historical influencers into the present, to better understand how businesses can exert a similar kind of political power. 

Schuler and Rehbein’s approach was to develop a series of snapshots that could provide insights into what kinds of lobbying worked best. To do this, they examined the political influence of 1,266 publically traded companies between 1991 and 1994, focusing on congressional testimony about two critical trade issues: the ratification of NAFTA and the Uruguay Round of multilateral trade negotiations during the General Agreement on Tariffs and Trade summit.

Studying the companies’ foreign market expertise, political relationships, and lobbying strategies, among other factors, Schuler and Rehbein investigated which elements played key roles in gaining access to Washington policymakers. That is to say, their goal was to understand how these companies most effectively wielded influence. If the companies managed to testify before Congress or join the ranks of trade policy advisory boards, they’d achieved noteworthy political access.

Which factors were the most critical to making such political inroads? The results were somewhat counterintuitive. First, the researchers found that experience didn’t guarantee access. There was little to suggest that a firm’s foreign experience would translate into appearing at a congressional hearing. Nor was experience with foreign sales a precursor to membership on advisory panels or trade policy organizations.

It was less clear whether the volume of a company’s export business played a role. Members of Congress tended to invite firms from industries with a high proportion of foreign sales to testify. But there was no clear indication that it mattered whether the firm competed significantly with import traffic.

You’d also expect that firms with a long history of holding sway in Washington would be more likely to be invited to testify at hearings or join trade associations. Turns out, that’s not quite the case. Past experience with trade policymaking bodies did not seem to affect congressional behavior regarding hearings.

What about the degree to which a given policy would affect a particular firm? Surely the companies with the most to gain or lose from a trade deal or tariff plan would be the stakeholders Congress would want to hear from? Not necessarily, Schuler and Rehbein found: The impact a policy would have on a company was statistically unimportant in predicting invitations to hearings.

So what does it take to wield influence in Washington? High-profile lobbyists, the researchers found. Companies that used lobbyists were significantly more likely to appear before Congress or to be a member of an important trade advisory institution.

Perhaps least surprisingly, one of the most influential factors in gaining political access is good old-fashioned cash. Firms that contributed to the Political Action Committees (PACs) of trade subcommittee members were significantly more likely to testify in hearings. Likewise, the firms that contributed PAC money to subcommittee members were more likely to be included on one of the trade advisory committees.

It’s a lesson that has stood the test of time when it comes to government influence: If you want to play, you have to pay. Think of that the next time you enter the Capitol rotunda.

Douglas Schuler is an associate professor of business and public policy at the Jones Graduate School of Business at Rice University.

To learn more, please see: Schuler, D., & Rehbein, K. (2011). Determinants of Access to Legislative and Executive Branch Officials: Business Firms and Trade Policymaking in the U.S. Business and Politics, 13(3), 1-30.

By Joe Mathews   

This article was written for Zócalo Public Square and originally posted as "The Healthiest Californians Are the Ones Who Are Healthy Together"

Immigrants bring cultural practices that could improve our health systems and the health of all Californians — if we do more to understand and deploy the advantages of cultural diversity, said a panel of experts on health and immigration at a Zócalo/The California Wellness Foundation event.

Those panelists — including top researchers and journalists — offered multiple examples of ideas that originated in immigrant communities that have made us healthier — from diet to exercise to an emphasis on family and social relationships. But they all pointed to one overarching conclusion: Immigrants often approach health together, with the participation of relatives and neighbors, instead of alone, as too many native-born Americans do.

In the foreign cultures, “there’s this continuity and connectedness that’s fundamental to your being. You are never alone,” said UCLA medical anthropologist Marjorie Kagawa-Singer. “We’ve lost that here” in the U.S.

The moderator, CALmatters health and welfare reporter Elizabeth Aguilera, began the event, held in the library at the Mechanics’ Institute in San Francisco, by asking what has been learned and adopted from immigrant cultures.

Journalist Claudia Kolker, author of The Immigrant Advantage, answered by citing a host of ideas. She said immigrants had taught Americans about the importance of post-partum care (which has been a higher priority in other cultures than in the U.S., where pre-natal health gets more emphasis), better ways of eating (she noted that Vietnamese culture makes meat a condiment, not the main course) and about seeing loneliness as a threat to health. “These are now medical ideas,” she said.

Asked by Aguilera how we might change our approaches to health from the lessons of immigrants, Kolker pointed to two. First, she suggested thinking bigger and having bigger life goals, as many immigrants do, which may help explain why immigrant groups in the U.S. have measurably better mental health. Second, referring to research from Rice University professor Utpal Dholakia, she suggested that thinking of your life as less of a highway and more as circle contributes to better planning and even more saving of money, which in turns aids health.

Kolker also said that living with grandparents, which is common in immigrant families, has cognitive benefits for children. And she said that understanding the importance of human touch is vital now, since Americans “as a society are touching each other less and less.” Many elderly patients are not touched at all, she said, even though we know from research and from other cultures that touch is good for our health.

Dr. David Hayes-Bautista, director of the Center for the Study of Latino Health and Culture at UCLA School of Medicine, argued that more attention must be given to the health advantages of immigrants and Latinos. He talked extensively about what he called the “Latino epidemiological paradox” — that even though Latinos often have less access to care than other Americans at the same income level, Latinos have fewer heart attacks, fewer cancers, drink less and smoke less, and live 3 and a half years longer. “If everyone in the United States had the same profile” as Latinos, “250,000 lives would be saved,” he said.

Hayes-Bautista has been investigating myriad possible reasons why Latinos do better — social networks, family, community support, diet, and even dance, music and spirituality. But, he cautions, instead of doing more to understand these advantages so they might be applied to medical care and training, the medical establishment has largely ignored diversity issues.

Medical training, he said, is based on “a bunch of stereotypes” about immigrants or Latinos as unhealthy, rather than as sources for ideas about health. And public health programs often exclude undocumented immigrants and recent immigrants, even though their participation in the health system might make us all healthier.

Kagawa-Singer, the UCLA medical anthropologist, said modern medicine doesn’t encourage doctors to listen to people from different cultures. And the U.S. system ends up dividing mental health and physical health, even though the experience of other cultures teaches us that mental and physical health are closely tied together.

“Modern medicine,” Kagawa-Singer said, offers “a very mechanistic view of the body isolated from the spirit, the family, and the community… And if there’s an immediate infection, biomedicine is great. But if you’re talking about chronic issues and mental illness, you have got to put the whole person back together again.”

During a wide-ranging question-and-answer session, audience members posed queries about the history of immigrant health and whether immigrants might bring a more open attitude and less costly interventions to medical care at life’s end. Panelists also suggested that the experience of immigrants who come from countries with universal health care might inspire the embrace of “Medicare for all,” especially in California, where political leaders have supported the idea.

In response to one query, panelists noted that immigrants may be healthier because people willing to leave their countries may be more adventurous and robust.

“There is evidence that families make the decision about who is the smartest and who is the least prone to being sick” when they decide who might immigrate first, Kolker said, “because he’s the person who is going to take care of us. So we get these extraordinary people coming here.”

Joe Mathews is the California and Innovation editor at Zócalo Public Square.

Based on research by Vikas Mittal (Rice Business), Yan Anthea Zhang (Rice Business), and Kyuhong Han (Korea University)

Key takeaways:

• Most firms stoke strategic advantages with innovations based on research and development or by managing customers using marketing and advertisement.
• Each of these approaches in turn affects stock market risk.
• When such companies emphasize research and development, rather than marketing, they’re more exposed to risk when demand drops.

Consider for a moment the race to build the next super computer. Google, Alibaba and other U.S. and China companies are racing to build a machine — called quantum computing — far more powerful than anything the world has ever seen. In this race, China reportedly has the lead.

Given that this kind of technology can protect trillions of dollars in corporate and even national secrets, why do American companies lag behind? If such research and development represents an unknown and is a potential business risk, should U.S. companies be interested in assuming such a task? Rice Business professors Vikas Mittal, Yan Anthea Zhang and a Rice Business Ph.D. student Kyuhong Han, may have answers.

They researched the various ways companies create strategic advantages for themselves. What is the relationship between these strategies and the risks involved? Companies create value through innovation-based activities such as research and development or else via branding and advertisement. As there’s no set formula for success, each company has its own approach — which could affect the risk associated with the company’s stock price (called idiosyncratic risk).

Typically, the two strategic pillars are examined separately, rather than jointly. But when they compared the two approaches, they found that one presented far more risk than the other.

To reach their conclusions, the Rice team looked at a data set of 13,880 firm-year observations that included 2,403 firms operating in 59 industries over 15 years (2000–2014). The data sets were from the firms’ annual operational and financial information from Standard & Poor’s Compustat, the University of Chicago’s Center for Research in Security Prices and from the Kenneth French Data Library. What the data revealed was the stock price of companies that placed a higher strategic emphasis on marketing and branding (called value appropriation) than companies that focused research and development (called value creation).

If it is less risky for a firm to emphasize branding and marketing over research and development it stands to reason that firms would want to exercise caution in big new research and development efforts. What’s the payoff for making a quantum computer or even Space X, after all, if the research and development risks associated with the endeavor are extraordinarily high? In some instances, it may be much safer to rebrand and market. Closer to home, many companies in the oil and gas industry bet big on innovative ventures — costly product features, digitization initiatives and so on that may only increase the risk to their stock price than meet customer needs.

The researchers found that firms that plunge big efforts into research and development have more to worry about than whether their innovations will work. They have to weather the fluctuations of industry demand. When industry demand is volatile, the downside of excessive research and development, at the cost of customer-relevant strategies is even worse.

For the Rice Business researchers, the lessons for managers are clear. The return on investment is intimately linked not only with optimizing potential profits but also minimizing potential risks. Research and development heavy endeavors like Space X and quantum computers may be flashy, but in the event of an unexpected drop in demand, they’re also more likely to plummet to earth, creating stock-price volatility.

Managers need to think about the elements that create risk — like demand instability. The more companies create a stable and predictable client base, the less risk that they have to face in the stock market. There is still a tendency among many firms to see advertising and research and development as preceding and guiding customer perceptions, preferences and behaviors. But perhaps the relationship is just the opposite.

Mittal, Zhang, and Han (2017). “Relative Strategic Emphasis and Firm-Idiosyncratic Risk: The Moderating Role of Relative Performance and Demand Instability,” Journal of Marketing.

Based on research by Alan Crane,  James P. Weston and Sébastien Michenaud

To learn more about the methodology behind this story, please see the video below. 

• Institutional investors can play an outsized role in determining stock dividends. 
• As little as a one-percentage point rise in institutional ownership can cause a $7 million (8 percent) increase in dividends.
• Institutional owners can influence payouts with the threat of selling, shareholder activism and even old- fashioned jawboning.

Markets tend to be obsessed with institutional investors. Hedge funds and other institutional investors are, after all, the pros. While there’s been ample research on the behavior of institutional investors, however, confirming a link between these investors and the level of dividend payouts has proven elusive. Until now, that is. 

Previously, the question concerned chickens and eggs: Do institutional investors influence stock payouts, or do they just choose firms where such payouts are prevalent? Using an innovative study sample, Rice Business professors Alan Crane and James Weston have found a clear link between the level of institutional investment and dividend payouts.

In order to tackle this problem, Crane and Weston joined Sébastien Michenaud of DePaul University to look at dividend payouts from the Russell 1000 and Russell 2000 indices between 1991 and 2006. 

The Russell 1000 is a value-weighted index of the largest 1,000 U.S.-listed firms. It competes with the highly popular S&P 500 index. The Russell 2000 is a value-weighted index of the 2,000 next-largest firms and has less competition in indexing mid-to-small cap stocks. 

According to the team’s estimates, a 1 percent increase in institutional investment in a firm caused a $7 million or 8 percent increase in dividends. The researchers were particularly interested in activities of firms that had fallen from the Russell 1000 and were not at the top of the Russell 2000 index. Why? Because this in-between zone between the Russell 1000 and 2000 is one of the few cases where the influence of institutional investors can be clearly traced. 

Fund managers, Weston explains, closely watch the top companies in the Russell 2000 — and the outcomes of those investments may or may not reflect their professional choices. But no one can know in advance the dividing line “between the 999th and 1001th largest stocks,” he notes. “Where the music stops, on June 30th, which is the day the index weights are defined for the year, is a crapshoot.” 

The result is a study scenario that’s akin to true randomization — necessary to the scientific method. 

The results? Institutional ownership, the researchers found, was roughly nine percentage points higher for firms at the top of the Russell 2000 compared to firms at the bottom of the Russell 1000. This difference is statistically significant. But did these firms change their behavior once they fell into the category in which large institutional investors would take interest?

What the researchers found was a pronounced pattern. Columbia Sportswear, for example, was a low-ranked Russell 1000 firm between the years 2001 and 2005. In 2006, Columbia fell out of the 1000 to land at the top of the Russell 2000. By the end of 2006, the company initiated a dividend, after investor pressure to boost payout.

Institutional investors, the researchers concluded, can exert influence for greater payouts in a number of ways. The most obvious is threatening to withdraw from a given stock altogether. Because such investors generally represent a large percentage of overall stock ownership, their threats can’t be taken lightly. 

Another way institutional investors can throw their weight around is by getting more active. Proxy voting, which allows shareholders to vote as a block, wields tremendous pressure on firms to pay out more in the way of dividends. The researchers found that firms at the top of the Russell 2000 were subject to far more shareholder proposals, especially those related to corporate governance, and far fewer management-backed proposals. The mere threat of voting, the researchers found, can influence firm policies.

Studying the unpredictable dividing zone between the Russell 1000 and Russell 2000 gave the scholars a unique chance to test an important economic question with conditions close to those in a random medical trial. The takeaway, however, is concrete. The rise of institutional investors in recent decades has led to better monitoring of corporations, which means shareholders are better off sharing investments with large instutional investors. 

So the next time you’re researching stocks, make sure to look at how much of the target company is institutionally owned. It may mean more in the way of dividends down the road.

To learn more about the methodology behind this story, please see the video of Professor James Weston speaking at a recent Rice Business Insights Series titlted "Cause and Effect. Making Sense of Data." 

Alan Crane is an associate professor of finance at the Jones Graduate School of Business at Rice University.

James P. Weston is the Harmon Whittington Professor of finance at Jones Graduate School of Business at Rice University.

To learn more, please see: Crane, A. D., Michenaud, S., & Weston, J. P. (2016). The effect of institutional ownership on payout policy: Evidence from index thresholds. The Review of Financial Studies, 29(6), 1377–1408.