Political Ownership

• In Event: People, Boards, and Leaders: Individual Backgrounds and Motivations in IPE

Abstract

By limiting costly regulation and granting government contracts and favorable court decisions, political connections provide substantial benefits to select firms. However, political connections can be disrupted. When a new politician comes to power, he may bring with him a new set of political connections. We argue that this change prompts newly politically connected individuals to take ownership of firms, and newly disconnected individuals to cede ownership of firms. Whether these ownership changes are voluntary or coerced (or voluntary when coercion is anticipated), we should see the same empirical pattern: Political turnover should increase turnover in firm ownership. This pattern should be more pronounced among firms with more immobile assets, because these are more vulnerable to government policy, and in countries with more corruption, because political connections are more valuable in those environments. We introduce firm-level data on the shareholders of publicly-traded companies in 69 middle-income countries to evaluate the theory.

Authors

• Timm Betz, Technical University of Munich

• Amy Pond, Technical University of Munich