Empirical analysis reveals preferential subsidized lending and reduced capital market issuance among politically connected firms, suggesting government credit crowds out private market financing.
This paper analyzes the relationship between political connections and firms' financing decisions in Brazil using large datasets on campaign contributions, loans from the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), and financial variables from Capital IQ. First, the results confirm those of previous studies showing that politically connected firms gain preferential access to finance. The present paper extends these studies by demonstrating that this access is even stronger when firms contribute to more than one party (hedging hypothesis) and are frequent contributors. Second, the present paper provides novel evidence by showing that politically connected firms issue less net equity and net debt (excluding subsidized loans from the Brazilian Development Bank, BNDES) than similar nonconnected firms, suggesting that the former firms avoid raising external resources from capital markets.
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Eduardo Kazuo Kayo (2026) studied this question.
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