The Characteristics Of Politically Connected Firms
Source: Purdue University (Krannert)
Evidence from firms in 47 countries shows that companies connected with officials have higher leverage and higher market shares, but they underperform nonconnected companies on an accounting basis. Differences between connected and unconnected firms become particularly pronounced when political links are stronger, and when connected firms operate in countries with higher levels of corruption. Several findings on the relationship between politics and business are revealed in this examination of connected corporations across several countries. Connected companies differ sharply from those not connected. On average, leverage is higher in connected corporations. Connected firms also enjoy lower taxation, and they display much greater market power. Connected firms display lower ROE and market valuation than their peers. These results are generally consistent across countries. This evidence is consistent with, and complements the results in previous studies of preferential access to credit by politically connected firms.