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Political connections and preferential access to finance: The role of campaign contributions

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  • Claessens, Stijn
  • Feijen, Erik
  • Laeven, Luc

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 than firms that did not around the 1998 and 2002 elections. This suggests that contributions help shape policy on a firm-specific 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 financing 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 this rent seeking over the two election cycles to be at least 0.2% of gross domestic product per annum.

Suggested Citation

  • Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2008. "Political connections and preferential access to finance: The role of campaign contributions," Journal of Financial Economics, Elsevier, vol. 88(3), pages 554-580, June.
  • Handle: RePEc:eee:jfinec:v:88:y:2008:i:3:p:554-580
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    More about this item

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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