Looking at the period 1997-2002, the research found that 11.3% of these firms received an aid package from their home government.
In contrast, only 4.4% of their non-connected peers received such support. The evidence also suggested that politically connected firms borrow more and are bailed out with greater frequency.
It was also found that bailed-out connected firms have significantly lower return on assets (ROA) than their industry peers and lower industry-adjusted ROAs than other bailed-out, non-connected firms.
Therefore, we can see two inefficiencies: funds are misallocated more frequently for bailed-out connected firms and they generate a less efficient allocation of market capital.
The study also found that politically connected organisations are substantially more likely to be bailed out when the IMF or World Bank intervenes.
Political connections and corporate bailouts
Mara Faccio, Ronald W Masulis and John J McConnell
Journal of Finance, Vol 61 No 6, December 2006