The Case of Germany

This chapter explores the nature and consequences of political connections among industrial firms listed on the Frankfurt Stock Exchange between 2000 and 2012. Germany represents a distinctive case due to its high governance standards, institutionalized board structures, and regulated market economy. Unlike countries with pervasive political-business entanglements, German corporations exhibit fewer overt political connections, yet still reveal meaningful links through supervisory board appointments, ownership structures, and informal affiliations. Using original datasets and panel data analysis, the chapter evaluates the impact of political ties—classified into board-level, ownership-based, and dual connections—on leverage, profitability, operational efficiency, and market power. The findings show that politically connected firms enjoy enhanced market access and credit availability but tend to underperform in terms of productivity and return on assets. These results are particularly evident for firms with board-level or dual connections. The chapter also captures the regulatory effects of increased disclosure obligations introduced in 2006, offering a natural experiment for assessing institutional reform. By situating the German case within broader comparative literature, this chapter contributes to understanding how political connections operate in a high-governance economy and provides a framework for future empirical and policy-oriented research.