ABSTRACT:

We study how political connections through the board of directors help in creating and sustaining rents. While the extant literature focuses on the role of political connections in the creation of rents, we distinguish between product markets and political markets, and subsequently examine how rents can be sustained in these markets. Using a unique panel dataset of candidates elected at either the national or state level in India and examining their membership of board of directors, we find that political connections are useful for sustaining the profit performance of firms. Further, we also find that connections with state-level politicians have a larger effect on profit persistence compared to connections with national-level politicians. Finally, profit persistence is higher in regulated industries than in other industries.