Hostname: page-component-77c89778f8-gvh9x Total loading time: 0 Render date: 2024-07-18T14:19:05.610Z Has data issue: false hasContentIssue false
  • English
  • Français

Businesspeople in Elected Office: Identifying Private Benefits from Firm-Level Returns

Published online by Cambridge University Press:  20 December 2017

DAVID SZAKONYI
DAVID SZAKONYI*
Affiliation:
George Washington University
*
David Szakonyi is an Assistant Professor of Political Science, Department of Political Science, George Washington University and Research Fellow, International Center for the Study of Institutions and Development (ICSID), Moscow, Russia. Mailing address: 2115 G St NW, Suite 440, Washington, DC, 20052 (dszakonyi@gwu.edu).
Get access Rights & Permissions [Opens in a new window]

Abstract

Do businesspeople who win elected office use their positions to help their firms? Business leaders become politicians around the world, yet we know little about whether their commitment to public service trumps their own private interests. Using an original dataset of 2,703 firms in Russia, I employ a regression discontinuity design to identify the causal effect of firm directors winning seats in subnational legislatures from 2004 to 2013. First, having a connection to a winning politician increases a firm’s revenue by 60% and profitability by 15% over a term in office. I then test between different mechanisms, finding that connected firms improve their performance by gaining access to bureaucrats and not by signaling legitimacy to financiers. The value of winning a seat increases in more politically competitive regions but falls markedly when more businesspeople win office in a convocation. Politically connected firms extract fewer benefits when faced with greater competition from other rent-seekers.

Type
Research Article
Information
American Political Science Review , Volume 112 , Issue 2 , May 2018 , pp. 322 - 338
Copyright
Copyright © American Political Science Association 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I thank Quintin Beazer, Michael Best, Noah Buckley-Farlee, Bo Cowgill, Tim Frye, Jonas Hjort, Phil Keefer, Yegor Lazarev, Eddy Malesky, Yotam Margalit, Israel Marques, Will Pyle, John Reuter, Camille-Strauss Kahn, Johannes Urpelainen, three anonymous reviewers, and the Journal's editor for their useful comments. I also benefited from feedback from seminar participants at George Washington, Columbia, MIT, Vanderbilt, Duke, Washington, and UCSD. This article was prepared within the framework of the Basic Research Program at the National Research University Higher School of Economics (HSE) and supported within the framework of a subsidy granted to the HSE by the Government of the Russian Federation for the implementation of the Global Competitiveness Program. It also is based on work supported by the National Science Foundation Graduate Research Fellowship under Grant No. DGE-11-44155. All errors are my own.

References

REFERENCES

Acemoglu, Daron, Johnson, Simon, Kermani, Amir, Kwak, James, and Mitton, Todd. 2016. “The Value of Connections in Turbulent Times: Evidence from the United States.” Journal of Financial Economics 121 (2): 368–91.Google Scholar
Amore, Mario Daniele, and Bennedsen, Morten. 2013. “The Value of Local Political Connections in a Low-Corruption Environment.” Journal of Financial Economics 110 (2): 387–402.Google Scholar
Ansolabehere, Stephen, Snyder, James M. Jr., and Ueda, Michiko. 2004. “Did Firms Profit from Soft Money?” Election Law Journal 3 (2): 193–8.Google Scholar
Besley, Timothy, and Coate, Stephen. 1997. “An Economic Model of Representative Democracy.” The Quarterly Journal of Economics 112 (1): 85–114.CrossRefGoogle Scholar
Blaydes, Lisa. 2011. Elections and Distributive Politics in Mubarak’s Egypt. Cambridge: Cambridge University Press.Google Scholar
Boas, Taylor C., Hidalgo, F. Daniel, and Richardson, Neal P.. 2014. “The Spoils of Victory: Campaign Donations and Government Contracts in Brazil.” Journal of Politics 76 (02): 415–29.Google Scholar
Boix, Carles, and Svolik, Milan W.. 2013. “The Foundations of Limited Authoritarian Government: Institutions and Power-sharing in Dictatorships.” Journal of Politics 75 (02): 300–16.Google Scholar
Bonardi, Jean-Philippe, Holburn, Guy, and Bergh, Richard G. Vanden Bergh. 2006. “Nonmarket Strategy Performance: Evidence from U.S. Electric Utilities.” Academy of Management Journal 49 (6): 1209–28.Google Scholar
Boubakri, Narjess, Guedhami, Omrane, Mishra, Dev, and Saffar, Walid. 2012. “Political Connections and the Cost of Equity Capital.” Journal of Corporate Finance 18 (3): 541–59.Google Scholar
Braendle, Thomas. 2016. “Do Institutions Affect Citizens’ Selection Into Politics?” Journal of Economic Surveys 30 (2): 205–27.Google Scholar
Braendle, Thomas, and Stutzer, Alois. 2013. “Political Selection of Public Servants and Parliamentary Oversight.” Economics of Governance 14 (1): 45–76.Google Scholar
Braendle, Thomas, and Stutzer, Alois. 2016. “Selection of Public Servants into Politics.” Journal of Comparative Economics 44 (3): 696–719.Google Scholar
Brancati, Dawn. 2014. “Democratic Authoritarianism: Origins and Effects.” Annual Review of Political Science 17: 313–26.Google Scholar
Bruno, Randolph Luca, Bytchkova, Maria, and Estrin, Saul. 2013. “Institutional Determinants of New Firm Entry in Russia: A Cross-Regional Analysis.” Review of Economics and Statistics 95 (5): 1740–9.Google Scholar
Bunkanwanicha, Pramuan, and Wiwattanakantang, Yupana. 2009. “Big Business Owners in Politics.” Review of Financial Studies 22 (6): 2133–68.Google Scholar
Calonico, Sebastian, Cattaneo, Matias D., and Titiunik, Rocio. 2014. “Robust Nonparametric Confidence Intervals for Regression-discontinuity Designs.” Econometrica 82 (6): 2295–326.Google Scholar
Cameron, A. Colin, Gelbach, Jonah B., and Miller, Douglas L.. 2011. “Robust Inference with Multiway Clustering.” Journal of Business and Economic Statistics 29 (2): 238–49.Google Scholar
Caughey, Devin, and Sekhon, Jasjeet S.. 2011. “Elections and the Regression Discontinuity Design: Lessons from Close US House Races, 1942–2008.” Political Analysis 19 (4): 385–408.Google Scholar
Choi, Seong-Jin, Jia, Nan, and Lu, Jiangyong. 2014. “The Structure of Political Institutions and Effectiveness of Corporate Political Lobbying.” Organization Science 26 (1): 158–79.Google Scholar
Cingano, Federico, and Pinotti, Paolo. 2013. “Politicians At Work: The Private Returns and Social Costs of Political Connections.” Journal of the European Economic Association 11 (2): 433–65.Google Scholar
DellaVigna, Stefano, Durante, Ruben, Knight, Brian, and La Ferrara, Eliana. 2016. “Market-Based Lobbying: Evidence from Advertising Spending in Italy.” American Economic Journal: Applied Economics 8 (1): 224–56.Google Scholar
Desai, Raj, and Olofsgard, Anders. 2008. “Do Politically Connected Firms Undermine Their Own Competitiveness? Evidence from Developing Countries.” Brookings Global Economy and Development Working Paper (18).Google Scholar
Diermeier, Daniel, Keane, Michael, and Merlo, Antonio. 2005. “A Political Economy Model of Congressional Careers.” The American Economic Review 95 (1): 347–73.Google Scholar
Eggers, Andrew, Fowler, Anthony, Hainmueller, Jens, Hall, Andrew, and Snyder, James M.. 2014. “On the Validity of the Regression Discontinuity Design for Estimating Electoral Effects: New Evidence from Over 40,000 Close Races.” American Journal of Political Science 59 (1): 259–74.Google Scholar
Eggers, Andrew C., and Hainmueller, Jens. 2009. “MPs for Sale? Returns to Office in Postwar British Politics.” American Political Science Review 103 (04): 513–33.Google Scholar
Faccio, Mara. 2006. “Politically-Connected Firms.” The American Economic Review 96 (1): 369–86.Google Scholar
Fisman, Raymond, Schulz, Florian, and Vig, Vikrant. 2012. “Private Returns to Public Office.” Journal of Political Economy 122 (4): 806–62.Google Scholar
Frye, Timothy, Reuter, Ora John, and Szakonyi, David. 2014. “Political Machines at Work: Voter Mobilization and Electoral Subversion in the Workplace.” World Politics 66 (2): 195–228.Google Scholar
Gagliarducci, Stefano, Nannicini, Tommaso, and Naticchioni, Paolo. 2010. “Moonlighting Politicians.” Journal of Public Economics 94 (9-10): 688–99.CrossRefGoogle Scholar
Gandhi, Jennifer, and Lust-Okar, Ellen. 2009. “Elections Under Authoritarianism.” Annual Review of Political Science 12 (1): 403–22.Google Scholar
Gehlbach, Scott, Sonin, Konstantin, and Zhuravskaya, Ekaterina. 2010. “Businessman Candidates.” American Journal of Political Science 54 (3): 718–36.Google Scholar
Geys, Benny, and Mause, Karsten. 2013. “Moonlighting Politicians: A Survey and Research Agenda.” The Journal of Legislative Studies 19 (1): 76–97.Google Scholar
Govorun, Andrei, Marques, Israel, and Pyle, William. 2016. “The Political Roots of Intermediated Lobbying: Evidence from Russian Enterprises and Business Associations.” Business and Politics 18 (4): 395–433.Google Scholar
Hadani, Michael, and Schuler, Douglas A.. 2013. “In Search Of El Dorado: The Elusive Financial Returns On Corporate Political Investments.” Strategic Management Journal 34 (2): 165–81.Google Scholar
Hellman, Joel S., Jones, Geraint, and Kaufmann, Daniel. 2003. “Seize the State, Seize the Day: State Capture and Influence in Transition Economies.” Journal of Comparative Economics 31 (4): 751–73.Google Scholar
Hillman, A. J. 2005. “Politicians on the Board of Directors: Do Connections Affect the Bottom Line?” Journal of Management 31 (3): 464–81.Google Scholar
Hillman, Amy J., Keim, Gerald D., and Schuler, Douglas. 2004. “Corporate Political Activity: A Review and Research Agenda.” Journal of Management 30 (6): 837–57.Google Scholar
Houston, Joel F., Jiang, Liangliang, Lin, Chen, and Ma, Yue. 2014. “Political Connections and the Cost of Bank Loans.” Journal of Accounting Research 52 (1): 193–243.Google Scholar
Iacus, Stefano M., King, Gary, and Porro, Giuseppe. 2011. “Causal Inference without Balance Checking: Coarsened Exact Matching.” Political Analysis 20 (1): 1–24.Google Scholar
Imbens, Guido, and Kalyanaraman, Karthik. 2012. “Optimal Bandwidth Choice for the Regression Discontinuity Estimator.” The Review of Economic Studies 79 (3): 933–59.Google Scholar
Khwaja, Asim, and Mian, Atif. 2005. “Do Lenders Favor Politically Connected Firms? Rent Provision In An Emerging Financial Market.” Quarterly Journal of Economics 120 (4): 1371–411.Google Scholar
Lee, David S. 2008. “Randomized Experiments from Non-random Selection in US House Elections.” Journal of Econometrics 142 (2): 675–97.CrossRefGoogle Scholar
Li, Hongbin, Meng, Lingsheng, Wang, Qian, and Zhou, Li-An. 2008. “Political Connections, Financing and Firm Performance: Evidence from Chinese Private Firms.” Journal of Development Economics 87 (2): 283–99.Google Scholar
Markus, Stanislav. 2012. “Secure Property as a Bottom-Up Process: Firms, Stakeholders, and Predators in Weak States.” World Politics 64 (02): 242–77.Google Scholar
Markus, Stanislav, and Charnysh, Volha. 2017. “The Flexible Few: Oligarchs and Wealth Defense in Developing Democracies.” Comparative Political Studies 50 (12): 1632–65.Google Scholar
Mattozzi, Andrea, and Merlo, Antonio. 2008. “Political Careers or Career Politicians?” Journal of Public Economics 92 (3): 597–608.Google Scholar
McCrary, Justin. 2008. “Manipulation of the Running Variable in the Regression Discontinuity Design: A Density Test.” Journal of Econometrics 142 (2): 698–714.Google Scholar
Mironov, Maxim, and Zhuravskaya, Ekaterina. 2016. “Corruption in Procurement and the Political Cycle in Tunneling: Evidence from Financial Transactions Data.” American Economic Journal: Economic Policy 8 (2): 287–321.Google Scholar
Okhmatovskiy, Ilya. 2010. “Performance Implications of Ties to the Government and SOEs: A Political Embeddedness Perspective.” Journal of Management Studies 47 (6): 1020–47.Google Scholar
Osborne, Martin J., and Slivinski, Al. 1996. “A Model of Political Competition with Citizen-Candidates.” The Quarterly Journal of Economics 111 (1): 65–96.CrossRefGoogle Scholar
Pepinsky, Thomas. 2014. “The Institutional Turn in Comparative Authoritarianism.” British Journal of Political Science 44 (03): 631–53.Google Scholar
Pyle, William. 2009. “Organized Business, Political Competition, and Property Rights: Evidence from the Russian Federation.” The Journal of Law, Economics, and Organization 27 (1): 2–31.Google Scholar
Remington, Thomas. 2008. “Patronage and the Party of Power: President–Parliament Relations under Vladimir Putin.” Europe-Asia Studies 60 (6): 959–87.Google Scholar
Reuter, Ora John, and Robertson, Graeme B.. 2015. “Legislatures, Cooptation, and Social Protest in Contemporary Authoritarian Regimes.” Journal of Politics 77 (1): 235–48.CrossRefGoogle Scholar
Reuter, Ora John, and Turovsky, Rostislav. 2014. “Dominant Party Rule and Legislative Leadership in Authoritarian Regimes.” Party Politics 20 (5): 663–74.Google Scholar
Richter, Brian Kelleher. 2010. “The Role Political Connections Play in Access to Finance: Evidence from Cross-Listing.” SSRN Working Paper 1503542.Google Scholar
Rosenson, Beth A. 2006. “The Impact of Ethics Laws on Legislative Recruitment and the Occupational Composition of State Legislatures.” Political Research Quarterly 59 (4): 619–27.Google Scholar
Saikkonen, Inga A-L. 2015. “Variation in Subnational Electoral Authoritarianism: Evidence from the Russian Federation.” Democratization 23 (3): 437–58.Google Scholar
Sakaeva, Maria. 2012. “Parliament as a Window of Opportunities: Research on Businessman Behavior in Deputy Seats Pursuing Market Interests.” Economic Sociology 13 (3): 96.Google Scholar
Siegel, Jordan. 2007. “Contingent Political Capital and International Alliances: Evidence from South Korea.” Administrative Science Quarterly 52 (4): 621–66.Google Scholar
Slinko, Irina, Yakovlev, Evgeny, and Zhuravskaya, Ekaterina. 2005. “Laws for Sale: Evidence from Russia.” American Law and Economics Review 7 (1): 284–318.Google Scholar
Treisman, Daniel. 2007. “What Have We Learned about the Causes of Corruption from Ten Years of Cross-national Empirical Research?” Annual Review of Political Science 10: 211–44.Google Scholar
Truex, Rory. 2014. “The Returns to Office in a “Rubber Stamp” Parliament.” American Political Science Review 108 (02): 235–51.Google Scholar
Supplementary material: Link

Szakonyi Dataset

Dataset

https://doi.org/10.7910/DVN/DO43V5
Link
Supplementary material: PDF

Szakonyi supplementary material

Szakonyi supplementary material 1

Download Szakonyi supplementary material(PDF)
PDF 165.2 KB
Submit a response

Comments

No Comments have been published for this article.