Political Connections and Preferential Access to Finance: The Role of Campaign Contributions
61 Pages Posted: 21 Mar 2007
There are 2 versions of this paper
Political Connections and Preferential Access to Finance: The Role of Campaign Contributions
Political Connections and Preferential Access to Finance: The Role of Campaign Contributions
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.
Keywords: Campaign Contributions, Elections, Corruption, Preferential Lending
JEL Classification: D7, G1, G2, G3, P48
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Mara Faccio
-
Cronyism and Capital Controls: Evidence from Malaysia
By Simon Johnson and Todd Mitton
-
Cronyism and Capital Controls: Evidence from Malaysia
By Simon Johnson and Todd Mitton
-
Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market
By Atif R. Mian and Asim Ijaz Khwaja
-
Political Connections and Corporate Bailouts
By Mara Faccio, Ronald W. Masulis, ...
-
Institutions, Ownership, and Finance: The Determinants of Profit Reinvestment Among Chinese Firms
By Robert Cull and Lixin Colin Xu
-
The East Asia Crisis and Corporate Finances: The Untold Micro Story
-
Political Connections and Preferential Access to Finance: The Role of Campaign Contributions
By Stijn Claessens, Erik Feyen, ...
-
Political Connections and Preferential Access to Finance: Role of Campaign Contributions
By Stijn Claessens, Erik Feyen, ...