Title: Elected Public Office and Private Benefit: Firm-Level Returns from Businesspeople Becoming Politicians in Russia
Abstract: Do firms benefit from political connections? If so, what are the underlying mechanisms behind the positive relationship? Using an original dataset of close to 3,000 politically connected firms in Russia, I examine the widespread but understudied strategy of businesspeople directly running for elected office. The paper employs a regression discontinuity design to identify the causal effect of gaining political ties, comparing outcomes of firms that are directed by candidates who either won or lost close elections to subnational legislatures. I first find that a connection to a winning politician can increase revenue by roughly 60% and profit margins by 15% over their time in office. I then test between different mechanisms potentially explaining the results, finding that connected firms improve their performance by gaining access to bureaucrats and reducing information costs, and not by signaling legitimacy to financiers. Finally, winning a parliamentary seat is more valuable for firms where democratization is greater, but less valuable when firms face acute sector-level competition. This finding suggests that the intensity of economic rivalry, rather than the quality of political institutions, best explains the decision to send a director into public office.
Publication Year: 2016
Publication Date: 2016-04-05
Language: en
Type: article
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Cited By Count: 5
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