Francisco Muñoz is a PhD candidate in economics at Stanford University. His primary research interests are development economics, finance, and political economy. In particular he is interested in the misallocation that arises from preferential political relationships or connections. In current work he studies the effects of Chile's transition to democracy on firm and industry growth, the impact of audits on local governments on local firms in Brazil, and the role of transparency in business networks and firm performance in the construction sector in Uganda. He also holds a BA and a MA in Economics from PUC Chile.
We exploit Chile’s transition to democracy as a natural experiment to estimate the impact of a political transition on firms, explicitly differentiating between firms with and without political connections. We find that the 1988 Plebiscite, which unexpectedly ended Augusto Pinochet’s dictatorship (1973–1990), had a large and transitory negative effect on the stock market returns of firms, and particularly large for firms with political connections. To motivate our empirical analysis we argue that there are two reasons why firms could be affected by this event: (1) variation in distortions associated to political connections, and (2) fundamental differences between political regimes that lead to changes in market structure. We find that firms with political connections increased investment in physical capital by 0.4 standard deviations. This result, together with an increase in leverage for connected following the plebiscite, and no differential changes in profits, lead us to conclude that the second mechanism was relatively stronger in our context.