Role of political connections in strategy execution: Project announcements and project costs

Abstract

While extant literature has discussed the benefits that corporate political strategies provide to firms, the mechanisms for such benefits remain largely unexplored. Prior work has examined a few mechanisms, such as access to finance and corporate bailouts through which political connections create rents for firms. Further, prior work has suggested that political connections provide micro and episodic benefits in the form of help with acquiring licenses, permits, land and infrastructure for new projects and meeting compliance requirements for on-going projects. Utilizing a unique dataset of projects undertaken by Indian firms, we empirically examine such benefits by considering two important project-level outcomes – new project announcements and project costs. We find that politically connected firms make significantly higher new project announcements and have lower project costs. We also find that state-level political connections are more beneficial than national-level political connections in enabling these benefits.