Businesspeople in Elected Office: Identifying Private Benefits from Firm-Level Returns
45 Pages Posted: 29 Sep 2016 Last revised: 22 Sep 2017
Date Written: September 21, 2017
Do businesspeople that win elected office use their positions to help their firms? Businessperson politicians are common worldwide, but little is known about the consequences of their entrance into politics. Using an original dataset of 2,706 firms in Russia, I employ a regression discontinuity design to identify the causal effect of firm directors winning seats in subnational legislatures in 2004-2013. I show that having a connection to a winning candidate increases a firm’s revenue by 60% and profit margin by 15% over their term in office. I then test between different mechanisms, finding that connected firms improve their performance by gaining access to bureaucrats, and not by signaling legitimacy to financiers. The value of winning a seat increases in more politically competitive regions, but falls markedly when more businesspeople win office in a convocation. Politically connected firms extract fewer benefits when faced with greater competition from other rent-seekers.
Keywords: Political Economy, Non-Market Strategy, Russia, Business-Government Relations
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