NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Mortality Cost of Political Connections

Raymond Fisman, Yongxiang Wang

NBER Working Paper No. 21266
Issued in June 2015
NBER Program(s):Corporate Finance, Development Economics, Law and Economics, Political Economy

We study the relationship between the political connections of Chinese firms and workplace fatalities. In our preferred specification we find that the worker death rate for connected companies is two to three times that of unconnected firms (depending on the sample employed), a pattern that holds for within-firm estimations. The connections-mortality relationship is attenuated in provinces where safety regulators' promotion is contingent on meeting safety targets. In the absence of fatalities, connected firms receive fewer reports of major violations for safety compliance, whereas in years of fatal accidents the rate of reported violations is identical. Moreover, fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. These results provide suggestive evidence that connections enable firms to avoid (potentially costly) compliance measures, rather than using connections to avoid regulatory response after accidents occur. Our findings emphasize the social costs of political connections, and suggest that appropriate regulatory incentives may be useful in mitigating these costs.

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Document Object Identifier (DOI): 10.3386/w21266

Published: Raymond Fisman & Yongxiang Wang, 2015. "The Mortality Cost of Political Connections," The Review of Economic Studies, vol 82(4), pages 1346-1382.

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