Do Criminal Politicians Affect Firm Investment and Value? Evidence from a Regression Discontinuity Approach

Journal of Business Ethics · 2025 · Volume 198 · Issue 3

Abstract

We provide evidence on the effects of criminal/corrupt politicians on firm performance and investments in their constituencies. Using a regression discontinuity approach, we focus on close parliamentary elections in India to establish a causal link between election of criminal-politicians and firms’ stock-market performance and investment decisions. Election of criminal-politicians leads to lower election-period and project-announcement stock-market returns for private-sector firms with economic ties to the district. There is a significant decline in total investment and employment by private-sector firms in criminal-politician districts. Interestingly, decline in private-sector investment is largely offset by a roughly equivalent increase in investment by state-owned firms.

Keywords

Corporate investments, Political corruption, Criminal politicians, Rent-seeking, Elections, Corruption, Indian political economy

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