Abstract:
In this study, we study the effect of gaining and losing political power on connected firms' outcomes in Bulgaria over the period 2010-2018. We use the Orbis dataset for firm-level characteristics, dataset of politically connected individuals and their connected firms, and lastly election outcomes to measure the change in power. We use a propensity score matching method and event-study design to estimate the effect. The treated group is the connected firms whose owner or manager participates in the local or national elections and either wins or loses the elections and the control group is unconnected firms that have similar characteristics in terms of industry, size, age, and sales. We find that politically connected firms that gain more power by winning national or local elections have an increase of 12% in their sales and 19.2% in their value-added on average compared to unconnected firms. However, there is no significant impact on employment size. Losing local/national elections has no significant impact on the firms' sales but there is a drop in employment in the year of election for losing firms compared to unconnected firms. We separate the effect of winning or losing by type of connection and intensity of being connected to local/national power.