@article{Cherkasova_Ivanova_2019, title={Do Political Connections Influence Investment Efficiency in Russian Companies?}, volume={13}, url={https://cfjournal.hse.ru/article/view/10074}, DOI={10.17323/j.jcfr.2073-0438.13.2.2019.36-49}, abstractNote={<p>The question as to whether political influence can benefit the commercial activity of companies, and the related<br>questions surrounding political corruption that arise, are of perennial fascination for persons at every level of society<br>and in every country. With this in mind, this article seeks to explore the relationship between political connections in<br>commercial firms and investment efficiency. This relationship will be studied on an empirical basis, and will shed some<br>light on the actual parameters, mechanisms, and effects of political influence in the business sphere in the Russian<br>Federation.<br>In this research, we consider only direct relations between business operators and the members of Russian ministries,<br>councils, political parties, heads of the regions and cities. These relationships are categorised as being politically<br>influential depending on the status of the politician, and whether they are active at a federal, regional or municipal<br>level. Connections with such politicians are examined where there is evidence of direct links with company CEOs and<br>chairmen of the boards of directors of companies.<br>This research is carried out on the sample of 106 Russian non-financial companies for the period 2010–2015. 44<br>companies from the final sample were considered as politically connected on at least one level. Some firms have<br>connections more than at one level (11 companies). Companies have politically connected chairman of the board (36<br>companies) more often than connected CEO (26 companies). Using regression analysis, we determined whether the<br>political ties in Russia have a positive or a negative impact on the investment expenditures of companies.<br>Interestingly, and perhaps contrary to popular belief, we identified a negative relationship between political ties and the<br>efficiency of investment decisions for individual companies. The presence of politically-connected CEOs at federal and<br>regional levels is seen to have a significant negative impact on investment efficiency. However, our results also indicate<br>that the presence of politically-connected chairmen of the board which are active at the municipal level is correlated<br>with efficient investment activity. This indicates that political influence at this level may be responsible for more prudent<br>recommendations regarding commercial and investment decisions. Overall, it can be seen that in this sample of<br>companies from the Russian Federation, the presence of state-tied representatives may be aligned with a tendency for<br>companies to follow targets that are favourable for its government connections and not for the firm itself.<br>Although political connections have a mixed impact on the company’s value, the relation with investment efficiency is<br>primarily negative. Thus, we may reason that the government has a strong power over politically-related companies.<br>Such influences are linked with a tendency for companies to deviate from their primary goal of value maximisation.<br>These results may indicate the influence of undue pressure from a government which strives to reach its own goals<br>through the mechanism of commercial activity, or perhaps the opportunistic behaviour of individuals in management<br>positions who are motivated towards personal political gain at the expense of the company. Political connections have a<br>mixed effect on the company’s performance and investment efficiency, and we postulate that firms establish relationships<br>with government officials pursuing the goal to obtain more advantageous position. The links between political operators<br>and business activity demonstrated in this research undoubtedly highlight some uncomfortable areas of discourse in<br>the commercial sphere. On a granular level, further research into specific transactions and motivations may seem more<br>a research area for journalists or law enforcement investigators, but this may be simply a popular prejudice. There is<br>certainly ample opportunity for expanding the scope of this study’s results. Beyond the interests of political, sociological<br>and legal researchers, the data presented herein will be of immediate interest to persons operating in the commercial,<br>business, and economic spheres of the Russian Federation and internationally.</p&gt;}, number={2}, journal={Journal of Corporate Finance Research / Корпоративные Финансы | ISSN: 2073-0438}, author={Cherkasova, Victoria and Ivanova, Anna}, year={2019}, month={ноя.}, pages={36-49} }