Political connections and firms: network dimensions

Abstract

Business and politician interaction is commonplace. Most research has classified firms as either connected to a politician or not: a binary approach. Yet, there are almost always strong network dimensions to these connections. This article builds a unique data set to document a network of connections between politically exposed persons (PEPs), political parties, and firms in seven economies. With this novel dataset, the article examines the association between the characteristics and performance of firms and the firms' connections with PEP, taking into account the network nature of these connections. The originality of our analysis is to identify how participation and location in a network, including the extent of links, as well as having a strategic location or centrality, is correlated with firm scale and performance. In a binary approach, such network characteristics are omitted. One consequence is that the intensity and consequences of politically connected business may be significantly mis/under-estimated.