Institutional Effects of U.S. Military Deployments and Corporate Leadership Change

David Ratliff

Advisor: Garett Jones, PhD, Department of Economics

Committee Members: John Nye, Thomas Stratmann

Enterprise Hall, #400
July 13, 2015, 02:00 PM to 10:00 AM


Contemporary economic and business literatures have reached near consensus that national and corporate institutional environments which promote trust, reduce corruption, encourage teamwork, and improve relationships between agencies and individuals generally lay the groundwork for macro and micro-economic growth. It is less clear how such institutions are developed, both nationally and within corporations. This dissertation explores three questions regarding the development and diffusion of corporate, economic, and political institutions.

Within corporations, the consensus appears to be that leadership matters. Numerous studies from widely varying disciplines demonstrate that leadership provided by the CEO impacts how and how well a company performs. While evidence mounts regarding the importance and influence of CEOs, the influence of second-tier leadership appears to be an open question. This paper begins to address this knowledge gap by seeking to determine which (if any) other corporate officers appear to affect market expectations of corporate performance identified by changes in stock price volatility associated with official management change announcements. Utilizing a new dataset provided by Liberum’s Management Change Database, I analyze the volatility of daily closing and intra-day stock market prices to (1) confirm established findings that the volatility of equity returns increases when CEOs are replaced with someone hired from outside the company or when a CEO resigns or retires from their position, and (2) find that, other than Directors, no other senior leadership positions generated consistently significant predictions of volatility changes for announcements overall.

Recent work by Jones and Kane identify a robust positive correlation between the natural log of U.S. troops deployed and economic growth among the countries receiving those troops. This paper explores the viability of institutional diffusion as a mechanism driving this growth. Using troop deployment data provided by DMDC and Economic Freedom of the World Index scores, OLS regression with country and regional fixed effects, and controlling for multiple independent variables (internal conflict, foreign aid, and democracy) and their interaction with troop deployments, this study examines the relationship between troop deployments and change in institutional development. Contrary to expectations, results provide very little evidence of institutional diffusion due to U.S. troop deployments and provide some evidence that troop deployments may in fact hinder institutional development as measured by the Economic Freedom of the World Index.

In Chapter 3, I evaluate the efficacy of using U.S. troops to promote and enforce the transition to and development of democratic institutions. Whereas previous researchers have found limited positive effects of U.S. military intervention on target countries’ Polity scores, I use the panel data described above to explore two previously unaddressed questions. First, I use OLS regressions to examine correlations between troop deployments over time (i.e. total troops deployed to each country over a fixed-length assessment window), instead of specific incidents of intervention (e.g. the invasion of Panama to capture Manuel Noriega), and positive change in Polity scores. Second, I identify differing effects of various explanatory variables on change in Polity score given the country’s score at the beginning of the assessment period. These results imply that positive movement in the Polity Index does not necessarily equate with progress toward democracy. Therefore, I convert the scale into a categorical dependent variable, and use this categorical dependent variable to test whether troop deployments are correlated with an increased rate of transition to the democratic category, rather than just positive movement along the Polity Scale.