Political Connectedness and Firm Performance - Evidence from Germany

This paper investigates politically connected German firms. With the introduction of a new transparency law, information on additional income sources of all members of the German parliament is now publicly available. We find that members of the conservative party (CDU/CSU) and the liberal party (FDP) are more likely to work for firms than members of left-wing parties (SPD and The Left) or the green party (Alliance 90/The Greens). Most importantly, politically connected firms significantly outperform unconnected firms on market- and accounting-based performance measures. The effect is more pronounced the higher the monetary compensation the delegate receives from the firm is.