Cross-Pressured Business: Ethnic Attachments of the Family Firm

• In Event: Political Economy of Firms

Abstract

Deep pockets allow business to wield instrumental power over politics. In India, with election expenses ballooning, parties are increasingly reliant on corporate contributions. But a systematic study of business-party links in the world’s largest democracy remains missing. I take advantage of a successful Right to Information filing in 2008 that require all registered political parties in India to disclose campaign donations above Rs 20,000 (approx. 250 USD). I scrape names of donors and fuzzy merge the corporate donors to a database of all registered corporations to recover the universe of uniquely identified corporate entities who donated to political parties between 2003 to 2020. I assemble a dataset of over 8000 unique companies making donations over a billion dollars to 45 political parties. In this paper, I first document stylized facts about how Indian businesses have donated to political parties over time, compare these patterns to the largely American existing literature, and identify puzzling empirical phenomena.

Unlike individuals, firms tend to make political contributions strategically rather than affectively. In a federalized country with competitive, multi-party elections with high turnover, a strategic model predicts giving to multiple parties. However, I find the vast majority (84%) of corporate donors in India tend to be one-off donors to a single party. Even within repeat players, over two-third companies tend to be loyal donors to a single party. Despite cases of electoral turnover at the state and national level, few donors tend to switch to donating to the new incumbent party. These findings suggest firms behaving less instrumentally, and more ideologically.

I argue these puzzling patterns of seemingly non-strategic corporate contributions can be best explained by recognizing the prevalence of family businesses in the Indian economy. The family firm is the dominant corporate form in the developing world, and so too in India. A family firm is more than just an economic entity, but a social entity as well, embedded in relationships and networks. Business scholars see the family firm incorporating non-economic incentives into its production function, which shapes its managerial, financing, and strategic decisions. I argue it should shape its political choices too. Defining a family firm as a business where operational control is concentrated in the hands of a single family, I argue this corporate structure gives the controlling family the agency to bring personal values to its business operations. In this way, I argue the family firm can donate ideologically to a single party of its preference. Further, in the Indian context, where social, economic, and political life cleave around ethnic identities of religion and sub-caste, I predict family firms to be more attached to co-ethnic political parties.

I build evidence for this argument in several steps. First, I develop a novel and scalable measure of family firms based on a company’s full historical board membership details. This measure shows the high prevalence of family firms in the broader Indian economy and among donors. Next, I run a simple logistic regression and find that non-family firms are between 2 and 4 times more likely to strategically hedge bets across parties. I then construct a measure of ethnic proximity between firms and political parties using the names of board members of a company and the list of candidates put up by political parties historically—my two methods of ethnic proximity rely directly on shared name frequency, and on religious similarities using a name-to-religion classifier (Chaturvedi & Chaturvedi 2023). I find ethnic proximity is a strong predictor of which political parties family firms in India choose to support financially.

Overall, this project sheds new light on the business and politics literature by showing how ethnic attachments can cross-pressure and even subordinate simple economic calculations for businesses in the political arena. The prevalence of family firms around the world make these ethnic attachments a more salient force in political finance.

Author

• Sukrit Puri, MIT