David Szakonyi Spoke on 'Firm-Level Returns from Connections to Elected Politicians: Evidence from Russia'

On June 9 a research seminar on political economy took place at HSE. David Szakonyi (Columbia University, HSE) delivered a lecture on 'Firm-Level Returns from Connections to Elected Politicians: Evidence from Russia'.

Abstract:
Do firms benefit from political connections? In recent years, a substantial literature has uncovered a positive correlation between political ties and a wide range of firm performance indicators. However, because connections between politicians and firms are not randomly assigned, the improved balance sheet outcomes that connected firms experience may instead reflect other underlying characteristics. For example, more competent firm directors may be effective at both developing in-roads with politicians and increasing firm revenue, making any relationship between the two spurious. In response, this paper employs a regression discontinuity (RD) design to identify the true causal effect of the acquisition of political connections on firm performance. Using a unique dataset of over 5,223 firms in Russia, I compare financial outcomes between firms that are connected to political candidates who either won or lost close elections to subnational legislative institutions. I find that a connection to a winning politician can net a firm at least an additional $13 million in revenue and $800,000 in net profits, which are substantial figures compared to those of firms having had directors lose an election. The value of winning office for firms is amplified in more economically developed regions, where natural resources are present, and when directors that are members of the ruling party. Greater success in receiving state contracts drives the improvements in firm performance.