Former Officials and Subsidies to State-Owned Enterprises

Former officials in business are often blamed for abusing their connections to the government to distort public policy to their advantage. This paper examines the extent of rents to former officials by analyzing subsidy allocation among state-owned enterprises in Korea. Defining connected CEOs as former members of the National Assembly or government officials, I have estimated the effects of connected CEOs on attracting government subsidies. Substantial replacement of CEOs after the change of political leadership, a unique feature of state-owned enterprises of Korea, helps cleaner identification than other related studies relying only on cross-sectional variations. The empirical evidence is consistent with a hypothesis that connected CEOs are more likely than others to attract state subsidy. This relationship seems stronger in case of CEOs from the relevant offices and weaker when the competing recipients have strong connections. Given the data limitation, however, part of the estimated effects may come from expertise rather than connections especially for former bureaucrats.