Political Connections and Financial Constraints : Evidence from Transition Countries
This paper examines whether political connections ease financial constraints faced by firms. Using firm-level data from six Central and Eastern European economies, the paper shows that politically connected firms: (i) have high levels of leverage,...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/146711565095465049/Political-Connections-and-Financial-Constraints-Evidence-from-Transition-Countries http://hdl.handle.net/10986/32208 |
| Summary: | This paper examines whether political
connections ease financial constraints faced by firms. Using
firm-level data from six Central and Eastern European
economies, the paper shows that politically connected firms:
(i) have high levels of leverage, (ii) have low levels of
profitability, (iii) are less capitalized, (iv) have low
marginal productivity of capital, and (v) do not invest more
than unconnected firms. Next, the paper shows that connected
firms borrow more because they have easier access to credit
and that political connections lead to a misallocation of
capital. The results are consistent with the idea that
political connections distort capital allocation and may
have welfare costs. |
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