Politically Connected Owners

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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 political turnover and turnover in the ownership of firms: Political turnover prompts newly politically connected individuals to take, and newly disconnected individuals to cede, ownership of firms. This pattern should be more pronounced in countries with weaker property rights, among firms with publicly recorded owners, and among firms with more immobile assets. Moreover, firms that experience changes to ownership during periods of political turnover should have elevated political connections and therefore pay less taxes and earn higher profits. Analyses of the ownership structure of firms in 87 countries are consistent with the theory. Because politically connected owners allow firms to compensate for other vulnerabilities, the theory also explains mixed findings in prior work on the consequences of asset immobility.

Original languageEnglish
Pages (from-to)561-595
Number of pages35
JournalComparative Political Studies
Volume56
Issue number4
DOIs
StatePublished - Mar 2023

Keywords

  • asset mobility
  • corruption
  • expropriation
  • firm ownership
  • ownership structure
  • political connections
  • political risk
  • political turnover
  • property rights
  • shell company

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