Losing Your Dictator: Firms During Political Transition

Can firms transfer distortions across political regimes? To answer this question, we use a novel dataset and a network analysis to study firms during Chile’s transition to democracy. We find that firms with links to the dictatorship were relatively unproductive before the transition, increased their productive capacity, enjoyed higher profits, and obtained more loans from state-owned banks during political transition. We test for different explanations and provide suggestive evidence consistent with strategic behavior aiming to improve their market position in democracy. These results suggests that distortions can be transferred across political regimes.