Political Connections of Firms During A Crisis

46 Pages Posted: 6 Apr 2022 Last revised: 4 Aug 2022

See all articles by Yutong Chen

Yutong Chen

University of Virginia - Department of Economics

Gaurav Chiplunkar

University of Virginia - Darden School of Business

Sheetal Sekhri

Department of Economics, University of Virginia

Anirban Sen

Microsoft Research

Aaditeshwar Seth

affiliation not provided to SSRN

Date Written: April 6, 2022

Abstract

We assemble a novel dataset of firms’ political connections and along with their detailed financial transactions, study whether and how these connections matter during an economic downturn. Using a synthetic difference-in-differences framework, we find that connected firms are relatively more likely to get access to short-term credit (especially from banks) and delay their short-term payments to suppliers and creditors in response to a large macroeconomic shock. They are therefore able to invest in productive assets, resulting in 8-10% higher income, sales, costs, as well as TFPR gains that are persistent for over a three year period following the crisis.

Keywords: Political Connections, Firms, Demonetization

JEL Classification: O16, D22, D73, E51

Suggested Citation

Chen, Yutong and Chiplunkar, Gaurav and Sekhri, Sheetal and Sen, Anirban and Seth, Aaditeshwar, Political Connections of Firms During A Crisis (April 6, 2022). Darden Business School Working Paper No. 4058355, Available at SSRN: https://ssrn.com/abstract=4058355 or http://dx.doi.org/10.2139/ssrn.4058355

Yutong Chen

University of Virginia - Department of Economics ( email )

237 Monroe Hall
P.O. Box 400182
Charlottesville, VA 22904-418
United States

Gaurav Chiplunkar (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Sheetal Sekhri

Department of Economics, University of Virginia ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Anirban Sen

Microsoft Research ( email )

Redomond, WA 98052

Aaditeshwar Seth

affiliation not provided to SSRN

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