The political behavior of family firms: Evidence from Brazil

We study the political behavior of family firms, the most prevalent corporate structure across the developing world. We argue that family firms are more politically active because their longer time horizons enable them to build and sustain relationships with political actors and to extract benefits from their political investments. Combining previously untapped firm-level information on family ties in publicly listed Brazilian firms with data on corporate campaign contributions, we document that family firms are 15 percentage points more likely to contribute to political campaigns compared to non-family firms — an 82 percent increase. We also find that individuals with family ties in a firm's leadership positions are more likely to make contributions. Contributions by family firms are more persistent over time, indicating that they reflect relationships. Family firms that contribute to campaigns are rewarded with state-subsidized loans, while those that fail to contribute face a penalty, suggesting a dynamic of reciprocity between business and state actors. Finally, we show that the entry of institutional investors has the potential to crowd out family ties within firms. The results provide empirical support to the claims of studies of comparative capitalism, while showing that the equilibria they describe are not necessarily static.