Marcos Nakaguma (Sao Paulo School of Economics – FGV)

Corporate Campaign Donations and Firms

Abstract: This paper examines the relationship between corporate campaign donations and market structure by analyzing the effects of a nationwide ban on corporate contributions enacted in Brazil in 2015. Our analysis leverages detailed information on campaign contributions and matched employer-employee administrative data. Specifically, we exploit pre-reform variation in exposure to corporate donations across sector-municipalities to estimate the impact of the ban on local markets using a dynamic difference-in-differences approach. Our results show that sector-municipalities more exposed to corporate contributions experienced a significantly larger increase in the number of firms, accompanied by lower market concentration and higher employment. Moreover, using public procurement data, we find that the ban led to a larger increase in the number of new firms transacting with the local government in more exposed sector-municipalities. Overall, our results suggest that the reform reduced barriers to entry in local markets, leading to a more level playing field for businesses across the country.