Why Corporate Political Connections Can Impede Investment

We present an experiment that manipulates corporate political connections to understand whether a company's political influence is a barrier or an inducement to intercorporate investment. Our data come from a survey of 3,329 firm employees and managers located in Venezuela, Ukraine and Egypt. On the whole we find that our respondents do not prefer to invest in companies with political connections. These results are highly conditional on the respondent's company: respondents from highly connected companies prefer to invest in companies with political connections, while respondents at less-connected companies prefer to invest in companies without political connections. We believe that what explains this finding are differences in how companies with and without connections manage liability as our survey data shows connected companies are much more likely to employ informal rather than formal mechanisms to resolve disputes. As a result, we believe that unconnected companies are more likely to invest in other unconnected companies to ensure that their property rights are protected.