Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272758 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 16131
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We use a new machine learning-enabled, social network based measurement technique to assemble a novel dataset of firms' political connections in India. Leveraging this data along with a long panel of detailed financial transactions of firms, we study how political connections matter during an economic downturn. Using a synthetic difference-in-differences framework, we find that connected firms had 8-10% higher income, sales, and TFPR gains that were persistent for over a three-year period following the crisis. We unpack various mechanisms and show that connected firms were able to delay their short-term payments to suppliers and creditors, delay debt and interest payments, decrease expensive long-term borrowings from banks in favor of short-term non-collateral ones, and increase investments in productive assets such as computers and software. Our method to determine political connections is portable to other applications and contexts.
Subjects: 
political connections
firms
crisis
JEL: 
O16
D22
D73
Document Type: 
Working Paper

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