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The Mortality Cost of Political Connections

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  • Raymond Fisman
  • Yongxiang Wang

Abstract

We study the relationship between the political connections of Chinese firms and workplace fatalities. In our preferred specification, we find that the worker death rate for connected companies is two to three times that of unconnected firms (depending on the sample employed), a pattern that holds for within-firm estimations. The connections–mortality relationship is attenuated in provinces where safety regulators' promotion is contingent on meeting safety targets. In the absence of fatalities, connected firms receive fewer reports of major violations for safety compliance, whereas in years of fatal accidents the rate of reported violations is identical. Moreover, fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. These results provide suggestive evidence that connections enable firms to avoid (potentially costly) compliance measures, rather than using connections to avoid regulatory response after accidents occur. Our findings emphasize the social costs of political connections, and suggest that appropriate regulatory incentives may be useful in mitigating these costs.

Suggested Citation

  • Raymond Fisman & Yongxiang Wang, 2015. "The Mortality Cost of Political Connections," Review of Economic Studies, Oxford University Press, vol. 82(4), pages 1346-1382.
  • Handle: RePEc:oup:restud:v:82:y:2015:i:4:p:1346-1382.
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    File URL: http://hdl.handle.net/10.1093/restud/rdv020
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    References listed on IDEAS

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    1. Fan, Joseph P.H. & Rui, Oliver Meng & Zhao, Mengxin, 2008. "Public governance and corporate finance: Evidence from corruption cases," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 343-364, September.
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