Table 5 reports correlations between the aggregate market share of politically connected firms, family owned (in panel A) and broadly defined (in panel B), and various industry characteristics during 1993–96 and 2000–09. The sorting of connected firms across industries is by no means random. Industries with higher levels of political connections – measured either by the market share of Suharto family firms or firms with broad connections – generate significantly more output, have more tangible assets, and have lower exports. Politically connected firms thus seem to sort into non-tradable industries. In addition, industries in which broadly defined politically connected firms are more important tend to import more. They have lower foreign ownership but higher state ownership penetration.<sup>16</sup> The market share of the largest four firms (market concentration) tends to be higher, and there are fewer firms in such industries.

Churning is negatively correlated with political connectedness. Both entry, exit, and the natural rate of entry are negatively correlated with political connectedness measures, albeit that the correlation between exit and family connections is not significant. Connections seem to repress entry.<sup>17</sup> Overall, political connections appear especially important in industries that are less competitive. Our summary competition index, Z, is negatively correlated with the aggregate market share of firms with both family and broad connections, but only significantly so for the latter group.

Regime change has resulted in a significant increase in the correlation between Suharto family connectedness and the aggregate competition index, albeit only at the 10% level. Competition thus appears to have improved somewhat in family connected industries, though we cannot reject the null hypothesis of no correlation between Suharto family connections and competition in either the Suharto era or the post-Suharto era. The negative correlation between broad connectedness and the summary competition index also attenuates slightly after Suharto’s fall, but not significantly so.

> 16 Note the contrast with the results from the firm level descriptive statistics, which show that politically connected firms have higher foreign ownership shares (see Table 3).

17 The natural rate of entry is based on US data, which assuages concerns about entry rates being endogenous to political connections. In principle, entry rates in the U.S. could also be endogenous to political connections and correlated with Suharto connectedness. Existing literature, however, suggests that this is not very likely. Fisman et al. (2012) estimate the value of being connected to former vice president Dick Cheney to be zero. Lobbying and fostering effective state-business relationships can still be an important determinant of corporate success in the U.S., but business-politics relationships are less personalized, and arguably more institutionalized in more advanced countries. Consistent with this argument, Faccio (2006) documents that political connections are less prevalent in countries which are more democratic and in which politicians are required to disclose their assets.

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