Received in revised form

a b s t r a c t This paper investigates ment investment. We connections between firms and politicians, such as those based on politicians ’ voting districts, to active forms, such as lobbying, campaign contributions, and employment of Troubled Asset Relief Program (TARP), we find that politically connected firms are more likely to be funded, controlling for other characteristics. Yet investments in politically connected firms underperform those in unconnected firms. Overall, we show that connec-tions between firms and regulators are associated with distortions in investment efficiency. & 2012 Elsevier B.V. All rights reserved. isms affect real economic outcomes. This article investigates one such Our study focuses on the financial crisis of 2008–2009, Contents lists available at SciVerse ScienceDirec