Politically-Connected Firms: Can They Squeeze the State?
56 Pages Posted: 2 Apr 2002
Date Written: March 23, 2002
Abstract
For a sample of 42 countries, I examine firms whose controlling shareholders and top managers are members of national parliaments or governments. I find that this overlap is quite widespread, especially in highly corrupted countries. Connected companies enjoy easier access to debt financing, lower taxation, and stronger market power. These benefits increase when companies are connected through their owner, with a minister, or a seasoned politician. Furthermore, these benefits are generally larger when the firm operates in a country with high corruption, low protection of property rights, a highly interventionist government, or a non-democratic government. Even though these connections provide significant benefits, connected firms under-perform their peers on an ex-ante basis. Therefore connections, by driving benefits to relatively poorly performing firms, distort the allocation of funds and investment decisions.
Keywords: Politican connections, ownership structure, board structure
JEL Classification: G30
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Mara Faccio
-
Cronyism and Capital Controls: Evidence from Malaysia
By Simon Johnson and Todd Mitton
-
Cronyism and Capital Controls: Evidence from Malaysia
By Simon Johnson and Todd Mitton
-
Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market
By Atif R. Mian and Asim Ijaz Khwaja
-
Political Connections and Corporate Bailouts
By Mara Faccio, Ronald W. Masulis, ...
-
Institutions, Ownership, and Finance: The Determinants of Profit Reinvestment Among Chinese Firms
By Robert Cull and Lixin Colin Xu
-
The East Asia Crisis and Corporate Finances: The Untold Micro Story
-
Political Connections and Preferential Access to Finance: The Role of Campaign Contributions
By Stijn Claessens, Erik Feyen, ...
-
Political Connections and Preferential Access to Finance: The Role of Campaign Contributions
By Stijn Claessens, Erik Feyen, ...