Politically connected companies are less likely to shutdown due to COVID-19 restrictions

Abstract

Objective While the aim of COVID-19 policies is to suppress the pandemic, many fear that the burden of the restrictions will fall more heavily on less privileged groups. We show one potential mechanism for COVID-19 responses to increase inequality by examining the intersection of business restrictions and business political connections. Methods We fielded an online survey of 2735 business employees and managers in Ukraine, Egypt, and Venezuela over the summer of 2020 to collect data on companies' closures due to COVID-19 and nuanced information about their political connections. Findings We show that businesses with political connections to government officials were significantly less likely to shut down as a result of COVID-19 policies. This finding suggests that measures designed to mitigate COVID-19 are ineffective in countries with a weak rule of law if politically connected firms are able to circumvent restrictions by leveraging political connections to receive preferential treatment. In addition, politically connected firms are no more likely-and sometimes even less likely-to engage in social-distancing policies to mitigate the pandemic despite the fact that they are more likely to remain open.