Hiding Control: Oligarchs, Predation, and Political Connections

Abstract: When firms are threatened with predation by competitors or the state, wealthy individuals may hide control of productive assets through opaque ownership chains and offshore firms. Leveraging a decision-theoretic model of hiding and political connections, we explore this relationship empirically with a study of Ukraine around the time of the Orange Revolution. Combining information from investigative journalists on control of over 300 key enterprises with rich data on formal ownership ties, we find that oligarchs who were in the opposition before the Orange Revolution were more likely to hide control through a variety of mechanisms. We also observe that oligarchs who were close to the regime in 2004 reversed course after the Orange Revolution, turning to offshore entities to protect their suddenly vulnerable assets. Exploiting presumed geographic variation in political connections, we find similar patterns of hiding in a larger sample of over 14,000 firms.