Elected Public Office and Private Benefit: Firm-level Returns from Businesspeople Becoming Politicians in Russia

Do firms benefit from political connections? If so, what are the underlying mechanisms behind the positive relationship? Using an original dataset of close to 3,000 politically connected firms in Russia, I examine the widespread but understudied strategy of businesspeople directly running for elected office. The paper employs a regression discontinuity design to identify the causal effect of gaining political ties, comparing outcomes of firms that are directed by candidates who either won or lost close elections to subnational legislatures. I first find that a connection to a winning politician can increase revenue by roughly 60% and profit margins by 15% over their time in office. I then test between different mechanisms potentially explaining the results, finding that connected firms improve their performance by gaining access to bureaucrats and reducing information costs, and not by signaling legitimacy to financiers. Finally, winning a parliamentary seat is more valuable for firms where democratization is greater, but less valuable when firms face acute sector-level competition. This finding suggests that the intensity of economic rivalry, rather than the quality of political institutions, best explains the decision to send a director into public office. ∗Department of Political Science, Columbia University and International Center for the Study of Institutions and Development (ICSID), Moscow, Russia. [email protected]. I thank Quintin Beazer, Michael Best, Noah Buckley-Farlee, Bo Cowgill, Tim Frye, Jonas Hjort, Phil Keefer, Yegor Lazarev, Eddy Malesky, Yotam Margalit, Israel Marques, Will Pyle, John Reuter, Camille-Strauss Kahn, and Johannes Urpelainen for their useful comments. This material was prepared within the framework of the Basic Research Program at the National Research University Higher School of Economics (HSE) and supported within the framework of a subsidy granted to the HSE by the Government of the Russian Federation for the implementation of the Global Competitiveness Program. It also is based upon work supported by the National Science Foundation Graduate Research Fellowship under Grant No. DGE-11-44155. All errors are my own.