Businesspeople in Elected Office

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

by David Szakonyi, George Washington University

Do businesspeople that 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 2,706 firms in Putin-era Russia, I employ a regression discontinuity design to measure how companies fare when their directors win seats in regional legislatures. First, I show that 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.

Read the full article.

American Political Science ReviewVolume 112Issue 2, May 2018