Intuitively, one would tend to think that a firm with links to the government or a local authority would benefit from advantages due to this privileged status. It has even been shown that a company with political connections would tend to apply for credit more easily, in other words be less discouraged from doing so, than a company without. This is mainly the result of privileged access to information. Thinking that it has no chance of obtaining a loan can discourage a company from applying for it and political connections seem to constitute an interesting lever to counterbalance the phenomenon. They actually have two consequences for companies.
They allow them, on the one hand, to have access to influential people and to derive personal benefits from them. This is the “know-who” theory. A company can thus have access to additional resources, but also to additional support. For example, political connections have been shown to allow businesses in Pakistan to pressure banks for preferential lending rates.
On the other hand, these connections also make it possible to better understand and benefit from the internal processes of governments or regulators. This is the theory of “know-how”. It is this theory that explains the reductions in banking discouragement: thanks to their links with the political world, companies have a better understanding of the credit market and the expectations of regulators, which allows them to be more confident in the arrangement of their file and dare to ask for credit.
Our recent study nevertheless suggests that, overall, this result would not hold for businesses led by women around the world.
Identical interests for everyone?
What happens when this understanding highlights problems in the market, such as discrimination? If the political connection gives women entrepreneurs privileged access to information and an understanding of the environment in which they operate, it also allows them to perceive more acutely the systemic barriers they face. A woman who spends time dealing with business matters with the government or regulator will tend to be more discouraged than a woman who never deals with them.
This interpretation is confirmed when we carry out a breakdown according to equal rights between men and women depending on the country. Using a World Bank indicator, we demonstrate that women with political connections are more discouraged, especially in countries where there is strong discrimination against women. Conversely, women are less discouraged when they are in countries with a fairly high level of equity.
It all depends on what maintaining political relationships allows us to observe: in the presence of strong discrimination, their network allows women to perceive it in a greater way and therefore tends to increase their discouragement; conversely, in the absence of discrimination, political connections allow women to better understand the credit process, to perceive the absence of potential discrimination, and therefore to reduce their discouragement.
Fight political connections?
Advantages conferred by ties to political figures are often considered unfair, or even illegal, mainly because of the “know-who” allowing individuals to lobby for personal benefit. However, our conclusions also remind us that they can prove positive when they make it possible to lift a form of self-censorship for women entrepreneurs who would need a loan. What to do then? Do you want to combat them or encourage them in certain contexts?
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As long as discrimination persists, women are likely to experience increased discouragement, even more so when they have political connections. It would therefore be towards measures aimed at promoting gender equality and eliminating discriminatory practices that we should turn to create a fair and favorable environment for women entrepreneurs, rather than seeking to put them in contact with personalities close to power.