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Do Politicians Affect Firm Outcomes? Evidence from Connections to the German Federal Parliament

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  • Diegmann, André

    (IWH Halle)

  • Pohlan, Laura

    (Institute for Employment Research (IAB), Nuremberg)

  • Weber, Andrea

    (Central European University)

Abstract

We study how connections to German federal parliamentarians affect firm dynamics by constructing a novel dataset to measure connections between politicians and the universe of firms. To identify the causal effect of access to political power, we exploit (i) new appointments to the company leadership team and (ii) discontinuities around the marginal seat of party election lists. Our results reveal that connections lead to reductions in firm exits, gradual increases in employment growth without improvements in productivity. The economic effects are mediated by better credit ratings while access to subsidies or procurement contracts are documented to be of lower importance.

Suggested Citation

  • Diegmann, André & Pohlan, Laura & Weber, Andrea, 2024. "Do Politicians Affect Firm Outcomes? Evidence from Connections to the German Federal Parliament," IZA Discussion Papers 17031, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17031
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    References listed on IDEAS

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    1. Brown, Jeffrey R. & Huang, Jiekun, 2020. "All the president's friends: Political access and firm value," Journal of Financial Economics, Elsevier, vol. 138(2), pages 415-431.
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    5. G. Jacob Blackwood & Lucia S. Foster & Cheryl A. Grim & John Haltiwanger & Zoltan Wolf, 2021. "Macro and Micro Dynamics of Productivity: From Devilish Details to Insights," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 142-172, July.
    6. Katrin Cremers & Paula Schliessler, 2015. "Patent litigation settlement in Germany: why parties settle during trial," European Journal of Law and Economics, Springer, vol. 40(2), pages 185-208, October.
    7. Joonkyu Choi & Veronika Penciakova & Felipe Saffie, 2021. "Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier," FRB Atlanta Working Paper 2021-13, Federal Reserve Bank of Atlanta.
    8. Bersch, Johannes & Degryse, Hans & Kick, Thomas & Stein, Ingrid, 2020. "The real effects of bank distress: Evidence from bank bailouts in Germany," Journal of Corporate Finance, Elsevier, vol. 60(C).
    9. Olle Folke, 2014. "Shades Of Brown And Green: Party Effects In Proportional Election Systems," Journal of the European Economic Association, European Economic Association, vol. 12(5), pages 1361-1395, October.
    10. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1371-1411.
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    Cited by:

    1. Di Addario, Sabrina & Feng, Zhexin & Serafinelli, Michel, 2024. "Inventors' Coworker Networks and Innovation," IZA Discussion Papers 17398, Institute of Labor Economics (IZA).
    2. Sabrina Di Addario & Zhexin Feng & Michel Serafinelli, 2024. "Inventors’ Coworker Networks and Innovation," CESifo Working Paper Series 11432, CESifo.

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    More about this item

    Keywords

    politicians; firm performance; identification; political connections;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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