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Differences between Politically Connected and Nonconnected Firms: A Cross-Country Analysis


  • Mara Faccio

    1. Mara Faccio is the Hanna Chair in Entrepreneurship and Associate Professor of Finance at the Krannert School of Management at Purdue University in West Lafayette, IN.
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  • Some of the results in this paper were previously circulated with the title “Politically-Connected Firms: Can They Squeeze the State?” I thank two anonymous referees, Massimo Belcredi, Bernardo Bortolotti, Lorenzo Caprio, Tom Cosimano, Serdar Dinç, Simeon Djankov, Ray Fisman, Mariassunta Giannetti, Richard Green, Tom Gresik, E. Han Kim, Meziane Lasfer, Ron Masulis, Paolo Mauro, John McConnell, Todd Mitton, Randall Morck, David Parsley, Susan Rose-Ackerman, Paul Schultz, Andrei Shleifer, and David Stolin for their helpful comments, and Suzanne Bellezza, Pam Losefsky and Patricia Peat for editorial help. I also benefited from comments from workshop participants at Indiana University, Stockholm School of Economics, Università Cattolica (Milan), Università di Lugano, University of Michigan, University of Notre Dame, Syracuse University, Vanderbilt University, the IMF, the AFA meeting, and at the METU International Conference in Economics. I also wish to thank Larry Lang for sharing data on group affiliation in Asia.


Evidence from firms in 47 countries shows that companies with political connections have higher leverage and higher market shares, but they underperform compared to nonconnected companies on an accounting basis. Differences between connected and unconnected firms are more pronounced when political links are stronger. Differences also vary depending on the level of corruption and the degree of economic development in individual countries.