Political Connections and Allocative Distortions
Publication Year
2019
Type
Journal Article
Abstract
Exploiting a unique institutional setting in Korea, this paper documents that politicians can increase the amount of government resources allocated through their social networks to the benefit of private firms connected to these networks. After winning the election, the new president appoints members of his networks as CEOs of state-owned firms that act as intermediaries in allocating government contracts to private firms. In turn, these state firms allocate significantly more procurement contracts to private firms with a CEO from the same network. Contracts allocated to connected private firms are executed systematically worse and exhibit more frequent cost increases through renegotiations.
Journal
The Journal of Finance
Volume
74
Pages
543–586
ISSN Number
1540-6261
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