The mortality cost of political connections (with Ray Fisman), Feb 2015, Forthcoming Review of Economic Studies

    ---See Harvard Business Review for a summary of the research, "The Unsafe Side of Chinese Crony Capitalism"

    ---Businessweek  WSJ

The mortality cost of political connections
Raymond Fisman, Yongxiang Wang
Columbia University, University of Southern California
This Draft: September, 2014
Abstract
We study the relationship between the political connections of Chinese firms and workplace
fatalities. In our preferred specification we find that the worker death rate for
connected companies is two to three times that of unconnected firms (depending on the
sample employed), a pattern that holds for within-firm estimations. The connectionsmortality
relationship is attenuated in provinces where safety regulators’ promotion is
contingent on meeting safety targets. Further analyses indicate that connections enable
firms to avoid (potentially costly) compliance measures, rather than using connections
to avoid regulatory response after accidents occur. In the absence of fatalities, connected
firms receive fewer reports of major violations for safety compliance, whereas in years
of fatal accidents the rate of reported violations is identical. Moreover, fatal accidents
produce negative returns at connected companies and are associated with the subsequent
departure of well-connected executives, overall indicating little protection from
regulatory backlash. Our findings emphasize the social costs of political connections,
and suggest that appropriate regulatory incentives may be useful in mitigating these
costs.
JEL classification: J81, D73, P26
Keywords: Political Connections, Labor Conditions, Corporate Social Responsibility, China.