Differences between Politically Connected and Nonconnected Firms: A Cross-Country Analysis
Despite the fact that corruption has a negative aggregate economic effect on a country’s investment and growth, a growing body of literature has pointed out that political connections may be beneficial to specific firms. Academic studies reporting evidence on how connections provide sources of value have identified only a few differences between connected and nonconnected firms, such as preferential access to credit (Johnson and Mitton, 2003; Chiu and Joh, 2004; Dinc¸, 2004; Cull and Xu, 2005; Khwaja and Mian, 2005), government contracts (Goldman, Rocholl, and So, 2008), regulatory protection (Kroszner and Stratmann, 1998), and government aid for financially troubled firms (Faccio, Masulis, and McConnell, 2006). Additionally, most of these studies look at individual countries and highly dissimilar types of connections, making cross-country comparison virtually impossible. By contrast, the purpose of this paper is to analyze how connected firms differ from nonconnected firms across a large number of countries...