When Power Changes Hands, So Do Firms
Researchers tracks how leadership changes drive firm ownership turnover across 87 countries
When Viktor Yushchenko was elected President of Ukraine in 2005, his government nationalized firms and sold them to new owners in a process it called “reprivatization.” The targeted companies had few connections to the incoming president but had been closely associated with former President Leonid Kuchma and his chosen successor Viktor Yanukovych. In Turkey, the AKP amended public procurement law over 150 times in a single decade, expanding government discretion over contracts and directing high-value awards to firms whose owners had political ties to the party.
A paper by Timm Betz and Amy Pond (Washington University in St. Louis) argues that episodes like these are extreme examples of a more routine consequence of political turnover. Political connections channel benefits to firm owners through favorable contracts and selective regulatory enforcement. When leadership changes, a new set of individuals gains those connections while the old set loses them. The owners who lose out value their firms less than they did before while newly connected buyers value those same firms more than the current owners do. That gap makes ownership transfers more likely, and Betz and Pond find that it happens frequently across non-OECD countries.
Betz and Pond build a formal model around this logic and use it to generate predictions about where the effect should be strongest. Firms that rely on immobile assets like plants and heavy equipment cannot credibly threaten to relocate when political conditions shift, which makes their owners especially vulnerable to political turnover and attractive to newly connected buyers. Firms with mobile assets can threaten to leave, giving them leverage no matter who holds office. Ownership clarity matters too. Some firms nest their ownership in shell companies based in tax havens, making it harder for governments or connected buyers to figure out who actually owns them, and consequently making it less likely ownership will change hands following a political transition. The strength of property rights in a given country also shapes the dynamic. In countries with impartial courts, owners who lose their political access can seek legal remedies, limiting the advantage that new connections provide. Where courts are unreliable, those advantages grow and ownership changes become more frequent after political transitions.
The authors test these predictions using Bureau van Dijk’s Orbis database to identify direct shareholders of up to the 5,000 largest firms in each of 87 non-OECD countries. They track changes in the identity of each firm’s controlling owner from 2008 to 2018, defining controlling owners as shareholders with at least a 50% stake. Political turnover is measured using the REIGN dataset, which records each instance of a new political leader coming to power. In a given year, 12.3% of firms in their sample experienced an ownership change, and 41% experienced at least one change over the full sample period. In the simplest regression, political turnover is associated with a 2.2 percentage point increase in the probability of ownership change, a 17.2% increase relative to the sample average. That result holds when the model is expanded to control for country-level attributes, as well as firm revenue, size, and industry. Ownership turnover following political change is larger among firms with immobile assets and publicly recorded owners, and in countries with weaker property rights.
Because political and economic disruptions often coincide, the authors run a separate analysis restricting the sample to presidential systems where executive elections follow fixed constitutional schedules and cannot be called early, ensuring that the timing of leadership change is not driven by economic conditions. This model’s estimates track the baseline findings closely. A new political leader produces a 2.5 percentage point increase in ownership turnover. The authors also run a model replacing ownership turnover with managerial turnover as the outcome variable. If general economic disruption were behind the results, managerial turnover should respond to political change in the same way. It shows no such response. Political turnover predicts changes in who owns firms but not changes in who manages them.
Betz and Pond also examine what these ownership changes mean for firm performance. They find evidence suggesting that owners who take control during periods of political turnover earn higher profits and pay lower taxes as a share of profits. The results are exploratory, but they gesture at the practical stakes of politically motivated ownership transfers and suggest that new owners benefit financially from their connections to incoming leadership.
The findings suggest that the consequences of political turnover extend well beyond changes in policy or government personnel. When leadership changes hands, the effects reach into the ownership structures of firms, and especially into firms with immobile assets, transparent ownership, and limited legal protections. Betz and Pond show that this process is not confined to the dramatic episodes of expropriation and reprivatization that make headlines in places like Ukraine and Turkey. Ownership turnover is a routine consequence of the way political connections shape who owns firms and how much those firms are worth to their owners.