Are transactional political connections more valuable to firms than relational political connections?

Abstract

Abstract Political connections are an increasingly important part of firms’ strategies to develop relationships with the government and politicians. This study examines the impact of transactional and relational political connections on firm value. The results show that transactionally connected firms are more likely to exhibit greater firm value than their relationally connected and non-connected counterparts. This study further finds evidence of a long-term value-enhancing effect of the transactional approach to political connections. A variety of robustness tests with alternative model specifications continue to show that transactional political connections lead to higher firm value. The findings indicate that firms with transactional political connections are provided with better networks with the political regime in power compared with those with relational political connections. These transactionally connected firms may enjoy preferential treatment from the government, in the form of lower taxes, and the access to government loans, subsidies, bailouts, and/or procurement contracts.