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The value of local political connections in a low-corruption environment

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  • Amore, Mario Daniele
  • Bennedsen, Morten

Abstract

We use exogenous changes in Danish local municipality sizes to identify a large positive effect of political power on the profitability of firms related by family to local politicians. Our difference-in-differences estimate is consistent with a unitary elasticity of connected firms’ performance to political power (as measured by population per elected politician). Increasing power boosts firms’ operating returns, especially in industries relying heavily on public demand. Focusing on arguably the world's least corrupt country, we highlight the importance of corporate rent seeking at local governmental levels, which account for nearly half of total public expenditures.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 110 (2013)
Issue (Month): 2 ()
Pages: 387-402

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Handle: RePEc:eee:jfinec:v:110:y:2013:i:2:p:387-402

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Political connections; Family ties; Rent extraction; Local politics;

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References

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  1. Faccio, Mara & Parsley, David C., 2009. "Sudden Deaths: Taking Stock of Geographic Ties," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(03), pages 683-718, June.
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Citations

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Cited by:
  1. Joël CARIOLLE, 2014. "Corruption in Turbulent Times: a Response to Shocks?," Working Papers P106, FERDI.
  2. Hasan, Iftekhar & Jackowicz, Krzysztof & Kowalewski , Oskar & Kozlowski , Lukasz, 2014. "Politically connected firms in Poland and their access to bank financing," BOFIT Discussion Papers 2/2014, Bank of Finland, Institute for Economies in Transition.
  3. Joël CARIOLLE, 2014. "Corruption in Turbulent Times: a Response to Shocks?," Working Papers P106, FERDI.
  4. Maria Rosaria Carillo & Vincenzo Lombardo & Alberto Zazzaro, 2013. "Family connections and entrepreneurial human capital: The uncertain destiny of proprietary capitalism," Mo.Fi.R. Working Papers 89, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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