Abstract

http://ssrn.com/abstract=676905
 
 

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Political Connections and Corporate Bailouts


Mara Faccio


Purdue University - Krannert School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Ronald W. Masulis


University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)

John J. McConnell


Purdue University

March 1, 2005

AFA 2006 Boston Meetings Paper
Journal of Finance, Vol. 61, No. 6, pp. 2597-2635, 2006

Abstract:     
We analyze the likelihood of government bailouts of a sample of 450 politically-connected (but publicly-traded) firms from 35 countries over the period 1997 through 2002. We find that politically-connected firms are significantly more likely to be bailed out than similar non-connected firms. Additionally, politically-connected firms are disproportionately more likely to be bailed out when the IMF or World Bank provide financial assistance to the firm's home country. Further, among firms that are bailed out, those that are politically-connected exhibit significantly worse financial performance than their non-connected peers at the time of the bailout and over the following two years. This evidence suggests that, at least in some countries, political connections influence the allocation of capital through the mechanism of financial assistance when connected companies confront economic distress. It may also explain prior findings that politically-connected firms borrow more than their non-connected peers.

Number of Pages in PDF File: 44

Keywords: Political connections, cronism, bailouts

JEL Classification: G3, G28, G30, G33

working papers series


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Date posted: March 25, 2005 ; Last revised: November 2, 2010

Suggested Citation

Faccio, Mara and Masulis, Ronald W. and McConnell, John J., Political Connections and Corporate Bailouts (March 1, 2005). AFA 2006 Boston Meetings Paper; Journal of Finance, Vol. 61, No. 6, pp. 2597-2635, 2006. Available at SSRN: http://ssrn.com/abstract=676905 or http://dx.doi.org/10.2139/ssrn.676905

Contact Information

Mara Faccio (Contact Author)
Purdue University - Krannert School of Management ( email )
1310 Krannert Building
West Lafayette, IN 47907-1310
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Ronald W. Masulis
University of New South Wales - Australian School of Business ( email )
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

John J. McConnell
Purdue University ( email )
MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)
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