Political connections, public procurement and small-scale expenditures

• Thesis title in Czech: Politické konexe, veřejné zakázky a výdaje malého rozsahu
• Thesis title in English: Political connections, public procurement and small-scale expenditures
• Academic year of topic announcement: 2018/2019
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: PhDr. Miroslav Palanský, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 22.05.2019
• Date of assignment: 22.05.2019
• Date and time of defence: 09.09.2020 09:00
• Venue of defence: Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206
• Date of electronic submission: 30.07.2020
• Date of proceeded defence: 09.09.2020
• Opponents: Mgr. Ing. Šarlota Smutná, M.Sc.

References

1. Palanský, M. 2014. Political Connections and Public Procurement: Evidence from the Czech Republic. Bachelor Thesis, Institute of Economic Studies, Charles University in Prague.
2. Palanský, M. 2016. The Value of Political Connections: Evidence from the Czech Republic. Diploma Thesis, Institute of Economic Studies, Charles University in Prague.
3. Navrátilová, A. 2018. Does donating to political parties pay off? Evidence from the Czech Republic. Bachelor thesis, Institute of Economic Studies, Charles University in Prague.
4. Titl, V. 2019. Political donations and the allocation of public procurement contracts. European economic review, 111, 443-458.
5. Tahoun A. 2014. The role of stock ownership by US Members of Congress on the market for political favours. Journal of Financial Economics, 111, 86–110.
6. Skuhrovec, J., Titl V., Palanský M. 2016. "Political Party Financing Report." Econlab z.s.
7. Claessens, S., Feijen, E., & Laeven, L. 2008. Political connections and preferential access to finance: The role of campaign contributions. Journal of Financial Economics, 88, 554–580.
8. Chaney, P., Faccio, M., & Parsley, D. 2011. The quality of accounting information in politically connected firms. Journal of Accounting and Economics, 51, 58–76.

Preliminary scope of work

Research question and motivation
The main topic of the thesis is political connections and how they affect the economic relationships between private and public sector. In the Czech Republic, it is legal to donate to political parties as a company. It is thus important to study the effects of this action as it is used aplenty – 22% of political parties’revenue come from donations (Skuhrovec et al. 2016). There is clearly an opportunity to misuse it and use political donations as a mean of corruption. In this thesis, I will examine some of the direct channels through which public funds flow to companies and how this cash flow is affected by political connections. There are results asserting that politically connected firms receive more contracts (Titl 2019) and those of greater value (Palanský 2014). The question is, whether the same holds for the smaller money transfers that are not large enough to be published. As those are not regulated as broadly as the larger contracts, the effect here could be even greater. Using the accounting data from Ministry of finance containing structured records of account changes that shows the relationships with the private sector of a majority of public institutions, I will be able to estimate the amount of the cash flow (both total and small-scaled separately) and determine how it is connected to the extent to which company donates to a political party. For this analysis, the dataset about political donations created by project politickefinance.cz will be used.

Contribution
Although the topic was partly examined by existing literature, I have not found a study using data that would show economic relationships beyond the published government contracts, which may exclude small-scale contracts as it is not mandatory to publish those. Studying smaller government expenditure will give us a better understanding of the motivation for political donations and the way they are used for the goals of a company. I believe this thesis could provide more evidence against political donations from firms. Moreover, the distinction between small-scaled and larger contracts could show which of those two pose a greater risk to public finance, and thus should be paid more attention in a public debate.

Methodology
The dataset I am going to use is a part of a set of financial statements that chosen entities of a government deliver to the central information system (Pomocný analytický přehled). It is a set of data from public institutions with aggregated records about all accounting transactions between the institution and each of its partners. From those partners (where other public institutions could be recorded), companies will be selected and matched with the record in dataset about political donations. Besides transactions and partners, the data shows where the contract for this transaction is published or whether it is not published at all. This gives an opportunity to study unpublished (small-scale) contracts separately in addition to the overall
analysis. In other words, I will test whether the cash flow from public institutions to a firm (estimated by the total change in accounting records in a given year) is dependent on donations to a political party by that firm and how strong the relationship is. A similar model will be used to test the same dependency using small-scaled contracts only in order to find any differences in those two sets of contracts.

Outline
1.Introduction
2.Literature Review
3.Background of the study
4.Data
5.Results for the Czech Republic
6.Conclusions