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Article

Do political connections make businesspeople richer? Evidence from Russia, 2003-2010

Grigoriev I., Zhirkov K.

An extensive body of literature shows that firms and businesspeople benefit from having political connections (Faccio 2010; Szakonyi 2018): being connected allows them to secure procurement contracts and government loans in hard times and crises (Claessens, Feijen, and Laeven 2008; Faccio, Masulis, and McConnell 2006; Khwaja and Mian 2005; Li et al. 2008), gives them tax benefits (Wu et al. 2012), and increases the firms’ market valuation (Faccio 2006; Liu, Tang, and Tian 2013; Su and Fung 2013). Connectedness is found to be especially important where institutions are weak (Li, Meng, and Zhang 2006; Gehlbach, Sonin, and Zhuravskaya 2010), but proves beneficial even in the well institutionalized environments (Goldman, Rocholl, and So 2009; Acemoglu et al. 2016) that are generally expected to discourage informality. Research into effects of political connectedness, however extensive, does not always focus systematically on the top-level business political engagement, and almost never compares different kinds of political connection and their efficiency (e.g. connections at the parliamentary v. executive, national v. regional level). Most studies are also essentially cross-sectional in their design – meaning they do not explore the possibility of change in the way connections work over time in any given jurisdiction, only showing how connected firms and businesspeople differ from the matchable unconnected ones. As a result the significance of the very political context making these connections meaningful for the businesspeople remains unexplored. We seek to fill these gaps by assembling and quantitatively analyzing a unique comprehensive data set of Russia’s richest businesspeople’s political connections for years 2003-2010.