Politically connected companies are less likely to shutdown due to COVID‐19 restrictions

Abstract

Objective: While the aim of COVID-19 policies is to suppress the pandemic, many fear that the burden of the restrictions will fall more heavily on less privileged groups. We show one potential mechanism for COVID-19 responses to increase inequality by examining the intersection of business restrictions and business political connections. Methods: We fielded an online survey of 2735 business employees and managers in Ukraine, Egypt, and Venezuela over the summer of 2020 to collect data on companies' closures due to COVID-19 and nuanced information about their political connections. Findings: We show that businesses with political connections to government officials were significantly less likely to shut down as a result of COVID-19 policies. This finding suggests that measures designed to mitigate COVID-19 are ineffective in countries with a weak rule of law if politically connected firms are able to circumvent restrictions by leveraging political connections to receive preferential treatment. In addition, politically connected firms are no more likely-and sometimes even less likely-to engage in social-distancing policies to mitigate the pandemic despite the fact that they are more likely to remain open.

The role of public aid and restrictions’ circumvention in SMEs’ pandemic survival strategies

“…The research examined small and medium-sized enterprises that bypassed restrictions to increase their likelihood of survival. In authors' view, this is a good addition to the research presented by Kubinec et al (2021), in which large enterprises operating in the so-called catching-up economies (Ukraine, Egypt, Venezuela) bypassed pandemic restrictions because they were politically favoured. In this study, circumvention took place in SMEs and the rationale for this was not connections to the authorities but an inefficient enforcement apparatus combined with consumer consent to participate in this semi-legal game.…”

Politically connected independent supervisory boards and corporate performance during COVID‐19: Evidence from Indonesia

“…COVID‐19 is an external risk factor over which the company has no control. Companies with political ties, according to Kubinec et al (2021), are exempt from complying with official government restrictions. However, this preferential treatment had no effect on the company's performance.…”

The political science of Covid‐19: An introduction

“…Kubinec, Lee, and Tomashevskiy (2021) also refer to an opportunistic logic of government to explain why countries that suffer from political and administrative corruption often had high incidence rates. In a sample of three corrupt countries, Kubinec explain why some companies could keep their business running, while others had to close during a lockdown.…”

“…The authors find a significant correlation between ideology and non-compliance in some but not in all countries. In the United States, a country with a highly politicized and polarized response to Covid-19 (Kubinec et al 2020;Stecula and Pickup 2021), individuals that place themselves on the extreme right of the political spectrum are less likely to practice social distancing. But in the analyzed country sample, the United States is an outlier (Pickup, Stecula, and van der Linden 2021).…”

“…However, political and social scientists should keep potential caveats in mind: First, the influence of partisan preferences measured on a traditional left-right scale, formal political institutions such as electoral systems, political decentralization, veto-players have, outside countries that already had polarized partisan conflicts before the pandemic (Kubinec et al 2020), been less influential than "weak" factors, most notably trust in government and public administration. Political trust influences compliance, thus indirectly the political costs of containment policies for incumbents and opposition parties that support containment policies.…”