How do powerful firms influence politicians to shaper economic and political institutions to their benefit? This dissertation proceeds to answer that question along two avenues with financial markets as a common factor. First, the dissertation focuses on the way these firms try to shape financial markets by lobbying. We find empirical support for the idea that incumbents use their connections to deliberatly induce financial hardship for their weaker competitors which may even force them to exit the market. Second, using information from the 1998 Brazilian elections, we empirically show that campaign contributions of listed firms are likely to buy specific political favors. Our analysis indicates that one of these favors could be preferential access to bank finance. Theoretically, the effect of political connections on social welfare is ambiguous. However, academic research and recent corporate scandals show that in the absence of proper checks and balances, odious relationships between powerful firma, politicians and public officials can be detrimental to society. By shedding empirical light on how and why powerful firms might influence financial markets, this dissertation possibl contributes to the academic and policy debate on politcal economy and corporate goverance.
Date of defence: 22 June 2006