Political connections offer significant benefits to companies, new research from the University of Groningen reveals.
The research shows firms with political connections increased in value by approximately 8 percent compared to non-connected companies, in a study of 338 companies listed in the United Kingdom.
The paper, ‘
Bringing Connections Onboard: The Value of Political Influence
’, by Swarnodeep Homroy of the Faculty of Economics and Business and Colin Green of NTNU, measured the performance of companies with directors who are Members of Parliament (MPs) in the UK, where almost half of the top 50 public firms have connections with a sitting MP.
The researchers were able to measure the value of political connections to companies due to a 2002 policy change that allowed British MPs with outside business interests to initiate parliamentary proceedings on issues that are related to their registered business interests. This change acts as a natural experiment, allowing company performance and other data to be measured and compared before and after it came into effect.
Firms with MPs as directors or consultants experienced substantial increases in financial returns following the introduction of this legislation, the research found. After the amendment, firms also reduced their contributions to political parties, indicating the value represented by direct access to policy making.
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