Campaign Contributions and Firm Performance: the 'latvian Way'

Abstract: This paper examines the effect of campaign contributions on firm performance in Latvia, using a unique dataset of firm-level campaign contributions by identifying all firms that donated directly or through its board member or shareholder. To address endogeneity issues, it focuses on an unanticipated result of the 2002 elections, when the ‘Latvian Way’ party failed to be re-elected and was replaced by the ‘First Party’. This paper finds that firms that provided contributions to the ‘Latvian Way’ experienced substantial decrease in sales in the after-election year. In contrast, firms that contributed to the ‘First Party’ experienced significant increase in sales.