Politically Connected CEOs and Corporate Outcomes: Evidence from France

A number of papers have documented that political leaders may use their power to grant favors to connected private firms. In this paper, we investigate the reverse perspective: we ask whether politically connected business leaders alter corporate decisions to bestow “re-election favors” onto incumbent politicians. We study this question in the context of France, where we document a large overlap in educational and professional background between the CEOs of publicly-traded firms and politicians: more than half of the assets traded on the French stock markets are managed by CEOS who were formally civil servants. Overall, our results provide support for the hypothesis that connections between CEOs and politicians factor into corporate decisions relating to job creation and destruction. Firms managed by connected CEOs create more jobs (and destroy fewer plants) in politically more contested areas, and especially around election years. We find weak evidence that these networks between politicians and business executives follow partisan lines. In return, “favors” extended by connected CEOs to politicians seem to be reciprocated through privileged access to subsidy programs and lower taxes. Lastly we show that firms managed by politically connected CEOs have lower performance than non-connected firms suggesting that political connections might impose a cost on the firms. ∗Preliminary and Incomplete. Please do not quote without authors’ permission. University of Chicago Graduate School of Business, NBER and CEPR; ENSAE-CREST and CEPR; MIT Sloan, NBER and CEPR; HEC and CEPR. We thank Florian Ederer, Mara Faccio, Justin Wolfers and seminar participants at CREST, MIT finance lunch, Stanford University and the University of California at Berkeley for many helpful comments on an earlier draft.