Political Connections of Firms During A Crisis
46 Pages Posted: 6 Apr 2022 Last revised: 4 Aug 2022
Date Written: April 6, 2022
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: Suggested Citation