politically conected firmspolitically connected firms.docVIP

Politically Connected Firms By MARA FACCIO* The incentive for corporations to become po- litically connected has been recognized among economists for many years and has probably been recognized by citizens of affected coun- tries for many more. As economists have noted, the source of such value can take various forms, including preferential treatment by government- owned enterprises (such as banks or raw mate- rial producers), lighter taxation, preferential treatment in competition for government con- tracts, relaxed regulatory oversight of the com- pany in question, or stiffer regulatory oversight globe. I address two main questions: What com- mon characteristics do countries with wide- spread political connections share? And, do connections add to company value? To answer these questions, I assemble a da- tabase that includes 20,202 publicly traded firms in 47 countries. A company is identified as being connected with a politician if at least one of its large shareholders (anyone controlling at least 10 percent of voting shares) or one of its top officers (CEO, president, vice-president, chairman, or secretary) is a member of parlia- of its rivals, and many other forms.1 However, ment, a minister, or is closely related to a top as emphasized by Andrei Shleifer and Robert politician or party. I define close relationships in W. Vishny (1994), politicians themselves will Section I. I do not include contributions to po- extract at least some of the rents generated by litical campaigns or direct (undisclosed) pay- connections, and corporate value will be en- ments to politicians in my analysis, but the hanced only when the marginal benefits of the connections I document are likely to be more connections outweigh their marginal costs. durable than one-time campaign contributions In this paper, I provide a comprehensive look or cash payments. at corporate political connections around the I find corporate political connections t