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What are the effects of institutional subversion on small business development, fiscal policies, economic growth, and firm performance? This paper provides an empirical investigation of institutional subversion in Russia’s regions. We develop a complete account of preferential treatments to the largest regional firms in texts of regional legislation during 1992-2000 and use the concentration of preferential treatments as a proxy for legislative subversion. Based on cross-section and panel data analysis, we find that regional institutional subversion has an adverse effect on small business growth, tax collection, social public spending, and federal tax arrears. At the firm-level, regional political influence generates substantial gains to firms both in the long and the short run. These firms exhibit faster growth in sales, market share, and employment compared to their counterparts who are not politically connected. Firms that exercise political influence have higher profitability despite the lower labor productivity. We check the robustness of these results by looking at an alternative proxy for potential subversion based on size concentration in regional economies. The alternative approach produces similar results