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Politically Connected Firms

by Mara Faccio. Reading for week of January 17, 2006

Using a new database that includes 20,012 publicly-traded firms in 47 countries, I find widespread evidence that controlling shareholders and top officers have connections with national parliaments and governments.  Political connections are particularly common in countries with higher levels of corruption, with barriers to foreign investment, and with more transparent systems.  They are less common when regulations set more limits on official behaviour.  An event study around the time of the announcements that officers or large shareholders are entering politics, or that politicians are joining boards, allows me to document a significant increase in corporate value, but only when those involved in business enter politics.

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