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Political Connections and Preferential Access to Finance: The Role of Campaign ContributionsStijn ClaessensInternational Monetary Fund (IMF); University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR); Tinbergen Institute; European Corporate Governance Institute (ECGI) Erik FeyenWorld Bank - Financial and Private Sector Development Vice Presidency Luc LaevenInternational Monetary Fund (IMF); Centre for Economic Policy Research (CEPR) Journal of Financial Economics, Forthcoming ECGI - Finance Working Paper No. 166/2007 AFA 2008 New Orleans Meetings Paper Abstract: Using novel indicators of political connections constructed from campaign contribution data, we show that Brazilian firms that provided contributions to (elected) federal deputies experienced higher stock returns around the 1998 and 2002 elections. This suggests contributions help shape policy on a firm-specific rather than ideological basis. Using a firm fixed effects framework to mitigate the risk that unobserved firm characteristics distort the results, we find that contributing firms substantially increased their bank leverage relative to a control group after each election, indicating that access to bank finance is an important channel through which political connections operate. We estimate the economic costs of these political connections over the two election cycles to be at least 0.2% of GDP per annum.
Number of Pages in PDF File: 61 Keywords: Campaign Contributions, Elections, Corruption, Preferential Lending JEL Classification: D7, G1, G2, G3, P48 Accepted Paper SeriesDate posted: March 21, 2007Suggested CitationContact Information
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