The Mortality Cost of Political Connections

58 Pages Posted: 15 Jun 2015

See all articles by Raymond J. Fisman

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

Yongxiang Wang

University of Southern California - Marshall School of Business

Date Written: June 2015

Abstract

We study the relationship between the political connections of Chinese firms and workplace fatalities. In our preferred specification we find that the worker death rate for connected companies is two to three times that of unconnected firms (depending on the sample employed), a pattern that holds for within-firm estimations. The connections-mortality relationship is attenuated in provinces where safety regulators' promotion is contingent on meeting safety targets. In the absence of fatalities, connected firms receive fewer reports of major violations for safety compliance, whereas in years of fatal accidents the rate of reported violations is identical. Moreover, fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. These results provide suggestive evidence that connections enable firms to avoid (potentially costly) compliance measures, rather than using connections to avoid regulatory response after accidents occur. Our findings emphasize the social costs of political connections, and suggest that appropriate regulatory incentives may be useful in mitigating these costs.

Suggested Citation

Fisman, Raymond and Wang, Yongxiang, The Mortality Cost of Political Connections (June 2015). NBER Working Paper No. w21266, Available at SSRN: https://ssrn.com/abstract=2618654

Raymond Fisman (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Boston University ( email )

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Boston, MA 02215
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Yongxiang Wang

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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