Politically connected firms and privileged access to credit: Evidence from Central and Eastern Europe

Maurizio Bussolo, Francesca de Nicola, Ugo Panizza and Richard Varghese

European Journal of Political Economy, 2022, vol. 71, issue C

Abstract: We use firm-level data from six Central and Eastern European economies to examine whether political connections ease financial constraints faced by firms. We show that politically connected firms are characterized by higher leverage, lower profitability, and lower productivity of capital than unconnected firms. However, we do not find any significant difference in investment rates between them. Politically connected firms, though less productive than unconnected firms, borrow more because they have easier access to credit. Our results are consistent with the idea that political connections distort capital allocation and may have welfare costs.

Keywords: Investment; Political connections; Corruption; Financial constraints (search for similar items in EconPapers)
JEL-codes: D22 O17 P12 P14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:71:y:2022:i:c:s0176268021000653

DOI: 10.1016/j.ejpoleco.2021.102073

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