Politically Connected Firms in the Philippines

Abstract: The paper explores the extent of family relations between businesses and government in the Philippines and provides the quantitative evidence for the rich anecdotal literature on Philippine politicians and their firms. The paper makes use of a unique dataset which combines financial data and ownership information of Philippine corporations with the names of incumbent government officials, and is first at systematically analyzing such data for the country. The study finds that around 20 percent of Philippine corporations are connected to incumbent politicians. The study employs Mahalanobis matching, using a Kernel method, to show that politically connected firms benefit from connections by gaining larger revenues, higher profitability, and acquiring more debt. Specifically, politically connected firms whose owners start from business first and enter politics later on were found to have higher revenues and profitability, meanwhile, connected firms whose owners started in politics first and established businesses later on acquired higher debt. Further, firms whose owners are connected to the losing candidate exhibited lower debt.