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Do Politicians Affect Firm Outcomes? Evidence from Connections to the German Federal Parliament

Author

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  • Diegmann, André

    (IWH Halle)

  • Pohlan, Laura

    (Institute for Employment Research (IAB), Nuremberg)

  • Weber, Andrea

    (Central European University)

Abstract

We study how connections to German federal parliamentarians affect firm dynamics by constructing a novel dataset to measure connections between politicians and the universe of firms. To identify the causal effect of access to political power, we exploit (i) new appointments to the company leadership team and (ii) discontinuities around the marginal seat of party election lists. Our results reveal that connections lead to reductions in firm exits, gradual increases in employment growth without improvements in productivity. The economic effects are mediated by better credit ratings while access to subsidies or procurement contracts are documented to be of lower importance.

Suggested Citation

  • Diegmann, André & Pohlan, Laura & Weber, Andrea, 2024. "Do Politicians Affect Firm Outcomes? Evidence from Connections to the German Federal Parliament," IZA Discussion Papers 17031, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17031
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    References listed on IDEAS

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    1. Federico Cingano & Paolo Pinotti, 2013. "Politicians At Work: The Private Returns And Social Costs Of Political Connections," Journal of the European Economic Association, European Economic Association, vol. 11(2), pages 433-465, April.
    2. Brown, Jeffrey R. & Huang, Jiekun, 2020. "All the president's friends: Political access and firm value," Journal of Financial Economics, Elsevier, vol. 138(2), pages 415-431.
    3. Olle Folke, 2014. "Shades Of Brown And Green: Party Effects In Proportional Election Systems," Journal of the European Economic Association, European Economic Association, vol. 12(5), pages 1361-1395, October.
    4. G. Jacob Blackwood & Lucia S. Foster & Cheryl A. Grim & John Haltiwanger & Zoltan Wolf, 2021. "Macro and Micro Dynamics of Productivity: From Devilish Details to Insights," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 142-172, July.
    5. Bersch, Johannes & Degryse, Hans & Kick, Thomas & Stein, Ingrid, 2020. "The real effects of bank distress: Evidence from bank bailouts in Germany," Journal of Corporate Finance, Elsevier, vol. 60(C).
    6. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1371-1411.
    7. Brachert, Matthias & Giebler, Alexander & Heimpold, Gerhard & Titze, Mirko & Urban-Thielicke, Dana, 2018. "IWH-Subventionsdatenbank: Mikrodaten zu Programmen direkter Unternehmenssubventionen in Deutschland. Datendokumentation," IWH Technical Reports 2/2018, Halle Institute for Economic Research (IWH).
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    More about this item

    Keywords

    politicians; firm performance; identification; political connections;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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