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The Cost of Political Connections

Author

Listed:
  • Marianne Bertrand
  • Francis Kramarz
  • Antoinette Schoar
  • David Thesmar

Abstract

Using plant-level data from France, we document a potential cost of political connections for firms that is not offset by other benefits. Politically connected CEOs alter corporate employment decisions to help (regional) politicians in their re-election efforts by having higher job and plant creation rates, and lower rates of destruction in election years, especially in politically contested areas. There is little evidence that connected firms benefit from preferential access to government resources, such as subsidies or tax exemptions. Connected firms are less profitable in the cross-section and also experience a drop in profitability when a connected CEO comes to power.

Suggested Citation

  • Marianne Bertrand & Francis Kramarz & Antoinette Schoar & David Thesmar, 2018. "The Cost of Political Connections," Review of Finance, European Finance Association, vol. 22(3), pages 849-876.
  • Handle: RePEc:oup:revfin:v:22:y:2018:i:3:p:849-876.
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    References listed on IDEAS

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    Cited by:

    1. Bircan, Çağatay & Saka, Orkun, 2019. "Lending cycles and real outcomes : Costs of political misalignment," BOFIT Discussion Papers 1/2019, Bank of Finland, Institute for Economies in Transition.
    2. Panagiota Papadimitri & Fotios Pasiouras & Gioia Pescetto & Ansgar Wohlschlegel, 2018. "Does Political Influence Distort Banking Regulation? Evidence from the US," Working Papers in Economics & Finance 2018-09, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    3. Krammer, Sorin & Jimenez, Alfredo, 2019. "Do political connections matter for firm innovation? Evidence from emerging markets in Central Asia and Eastern Europe," MPRA Paper 94942, University Library of Munich, Germany.

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