DP17424 The Power of Connections: Colonialism, Nationalism, and Corporate Performance in Egypt, 1890 - 1950
The impact of political connections on firm performance has been widely studied. It is less known though whether this effect varies under the colonial and post-independence eras. Inspired by a nationalist agenda aiming at establishing an indigenous business elite, post-independence regimes often used connections with the emerging national private sector to counter the influence of established larger colonial-era foreign corporations. Using novel fine-grained data covering the universe of corporations, founders, and members of parliament and cabinet in colonial
(1890–1923) and post-independence Egypt (1924–1950), we document that connections to the Egyptian political class lowered firm value before independence but increased it afterwards. Connections became lucrative after independence because they lowered entry rates in the industry, expedited the state authorization of incorporation, and reduced the exit hazard even after losses.