Politically Connected Ownership

• In Event: The Politics of Politically Connected Firms

Abstract

Political connections provide substantial benefits to firms. We emphasize the ownership of firms as an important channel through which political connections operate, and identify a resulting link between turnover in the political leadership and turnover in the ownership of firms: Political turnover prompts newly politically connected individuals to take, and disconnected individuals to cede, ownership of firms. This pattern should be more pronounced among firms with more immobile assets, because these are more vulnerable to government policy and have more to gain from political connections. Moreover, firms that experience changes to ownership, caused by political turnover, should pay less taxes. Analyses of firm-level data on the owners of companies in 68 middle-income countries are consistent with the theory.

Authors

• Timm Betz, Technical University of Munich

• Amy Pond, Technical University of Munich