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,...

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Main Authors:	Bussolo, Maurizio, de Nicola, Francesca, Panizza, Ugo, Varghese, Richard
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2019
Subjects:	POLITICAL CONNECTIONS CORRUPTION FINANCIAL CONSTRAINTS INVESTMENT POLITICALLY EXPOSED PERSONS RETURN ON ASSET ALLOCATIVE EFFICIENCY MARGINAL PRODUCT OF CAPITAL MISALLOCATION OF CAPITAL
Online Access:	http://documents.worldbank.org/curated/en/146711565095465049/Political-Connections-and-Financial-Constraints-Evidence-from-Transition-Countries http://hdl.handle.net/10986/32208

id	okr-10986-32208
recordtype	oai_dc
spelling	okr-10986-322082022-09-20T00:15:18Z Political Connections and Financial Constraints : Evidence from Transition Countries Bussolo, Maurizio de Nicola, Francesca Panizza, Ugo Varghese, Richard POLITICAL CONNECTIONS CORRUPTION FINANCIAL CONSTRAINTS INVESTMENT POLITICALLY EXPOSED PERSONS RETURN ON ASSET ALLOCATIVE EFFICIENCY MARGINAL PRODUCT OF CAPITAL MISALLOCATION OF CAPITAL 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. 2019-08-07T19:51:15Z 2019-08-07T19:51:15Z 2019-08 Working Paper http://documents.worldbank.org/curated/en/146711565095465049/Political-Connections-and-Financial-Constraints-Evidence-from-Transition-Countries http://hdl.handle.net/10986/32208 English Policy Research Working Paper;No. 8956 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Europe and Central Asia Eastern Europe
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	POLITICAL CONNECTIONS CORRUPTION FINANCIAL CONSTRAINTS INVESTMENT POLITICALLY EXPOSED PERSONS RETURN ON ASSET ALLOCATIVE EFFICIENCY MARGINAL PRODUCT OF CAPITAL MISALLOCATION OF CAPITAL
spellingShingle	POLITICAL CONNECTIONS CORRUPTION FINANCIAL CONSTRAINTS INVESTMENT POLITICALLY EXPOSED PERSONS RETURN ON ASSET ALLOCATIVE EFFICIENCY MARGINAL PRODUCT OF CAPITAL MISALLOCATION OF CAPITAL Bussolo, Maurizio de Nicola, Francesca Panizza, Ugo Varghese, Richard Political Connections and Financial Constraints : Evidence from Transition Countries
geographic_facet	Europe and Central Asia Eastern Europe
relation	Policy Research Working Paper;No. 8956
description	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.
format	Working Paper
author	Bussolo, Maurizio de Nicola, Francesca Panizza, Ugo Varghese, Richard
author_facet	Bussolo, Maurizio de Nicola, Francesca Panizza, Ugo Varghese, Richard
author_sort	Bussolo, Maurizio
title	Political Connections and Financial Constraints : Evidence from Transition Countries
title_short	Political Connections and Financial Constraints : Evidence from Transition Countries
title_full	Political Connections and Financial Constraints : Evidence from Transition Countries
title_fullStr	Political Connections and Financial Constraints : Evidence from Transition Countries
title_full_unstemmed	Political Connections and Financial Constraints : Evidence from Transition Countries
title_sort	political connections and financial constraints : evidence from transition countries
publisher	World Bank, Washington, DC
publishDate	2019
url	http://documents.worldbank.org/curated/en/146711565095465049/Political-Connections-and-Financial-Constraints-Evidence-from-Transition-Countries http://hdl.handle.net/10986/32208
_version_	1764476034341666816

Political Connections and Financial Constraints : Evidence from Transition Countries

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