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Businesspeople in Elected Office: Identifying Private Benefits from Firm-Level Returns

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  • David Szakonyi

    (George Washington University and ICSID)

Abstract

Do businesspeople that win elected office use their positions to help their firms? Busi- nessperson politicians are common worldwide, but little is known about the consequences of their entrance into politics. Using an original dataset of 2,706 firms in Russia, I employ a regression discontinuity design to identify the causal effect of firm directors winning seats in subnational legislatures in 2004-2013. I show that having a connection to a winning candidate increases a firm’s revenue by 60% and profit margin by 15% over their term in office. I then test between different mechanisms, finding that connected firms improve their performance by gaining access to bureaucrats, and not by signaling legitimacy to financiers. The value of win- ning a seat increases in more politically competitive regions, but falls markedly when more businesspeople win office in a convocation. Politically connected firms extract fewer benefits when faced with greater competition from other rent-seekers.

Suggested Citation

  • David Szakonyi, 2017. "Businesspeople in Elected Office: Identifying Private Benefits from Firm-Level Returns," Working Papers 2017-20, The George Washington University, Institute for International Economic Policy.
  • Handle: RePEc:gwi:wpaper:2017-20
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    File URL: http://www2.gwu.edu/~iiep/assets/docs/papers/2017WP/IIEPSzakonyi2017-20.pdf
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    References listed on IDEAS

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    6. Li, Hongbin & Meng, Lingsheng & Wang, Qian & Zhou, Li-An, 2008. "Political connections, financing and firm performance: Evidence from Chinese private firms," Journal of Development Economics, Elsevier, vol. 87(2), pages 283-299, October.
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    8. Geys, Benny & Mause, Karsten, 2011. "Moonlighting politicians: A survey and research agenda," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2011-101, Social Science Research Center Berlin (WZB).
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    10. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, Oxford University Press, vol. 120(4), pages 1371-1411.
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    Cited by:

    1. Israel Marques II, 2017. "Political Connections and Non-Traditional Investment: Evidence from Public-Private Partnerships in Vocational Education," HSE Working papers WP BRP 56/PS/2017, National Research University Higher School of Economics.

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