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The less economic freedom a state possesses, the more political connections local firms need. That’s what John Jahera, professor in finance at the Harbert College of Business, and two former Harbert College professors in finance, Dan Gropper and Jung Chul Park, concluded in an article recently published in the London School of Economics Review.
Based on a paper the team produced in 2015, “Political Power, Economic Freedom and Congress: Effects on Bank Performance,” Jahera, Gropper and Park informed readers that “the value of political connections and influence on local firm performance are strongest and most clearly seen in business environments that are less economically free … In summary, there is evidence to suggest that it does indeed pay to know people in high places.”
“We focused on the banking industry largely because banks are heavily regulated,” Jahera said. “If you are in any industry that’s regulated, you like to make sure that your voice is heard when political leaders and government regulatory bodies are considering further regulation.
“The value of political connections can be even greater, the more regulated the industry. We think a lot of people are interested in that. There has been a lot of research done around the world to see how firms spend their lobbying dollars trying to influence public policy, influence regulatory actions, and things of that nature.”
Gropper is serves as dean of the College of Business and professor in finance at Florida Atlantic University in Boca Raton, Fla. He was previously Harbert College’s Associate Dean for Graduate and International Programs. Park is now assistant professor in finance at the University of South Florida.
“The London School of Economics is known throughout the world,” Jahera said. “It’s a premier institution of higher learning and to be invited to write a business article for them is certainly good for us, and our reputation, and for the reputation of Auburn.”