This paper analyzes a novel data set on all corporate political donations made in Czechia during its post-transition period between 1995 and 2014. Using these donations as a proxy for political connections, I assess the relationship between connections and financial performance of the connected firms. To eliminate the pervasive endogeneity concerns that haunt the baseline cross-sectional models of the effect of connections, I develop a dynamic matching approach to identify non-connected firms that are similar to their connected peers in a range of observable characteristics, including profitability prior to becoming connected. In line with the theoretical predictions, I find that being politically connected is indeed associated with superior financial performance. The results suggest that the connected firms outperform their non-connected but otherwise similar competitors by 12 to 14 % following the establishment of the connection. Importantly, however, I find that the effect virtually vanishes when we consider only those non-connected firms that work closely with the public sector, suggesting that other forms of connections, such as personal ties, and those established at subnational levels of government, such as the regional and municipal level, are likely to have played a significant role in Czechia during its post-transition period.
