New SSE Riga/BICEPS research paper by V. Dombrovsky (BICEPS, SSE Riga).
Abstract. This paper examines the effect of campaign contributions on firm performance in Latvia, using a quasi-experiment provided by the 2002 elections. An unanticipated result of the election was that the ‘Latvian Way’, one of the most influential parties, failed to be reelected and was replaced by the ‘First Party’. It constructs a unique dataset of firm-level campaign contributions by identifying all firms that donated directly or through its board member or shareholder. This paper finds that firms that provided contributions to the ‘Latvian Way’ experienced substantial decrease in sales in the after-election year, compared to firms that did not contribute. In contrast, firms that contributed to the ‘First Party’ experienced significant increase in sales. These findings suggest campaign contributions help firms benefit from firm-specific political favors.