WORKING PAPER · NO. 2019-142 Preventing Predation: Oligarchs, Obfuscation, and Political Connections John S. Earle, Scott Gehlbach, Anton Shirikov, and Solomiya Shpak DECEMBER 2019 5757 S. University Ave. Chicago, IL 60637 Main: 773.702.5599 bfi.uchicago.edu Preventing Predation: Oligarchs, Obfuscation, and Political Connections John S. Earle, Scott Gehlbach, Anton Shirikov, and Solomiya Shpak∗ This version: December 8, 2019 Abstract We examine the decision of wealthy business owners to protect their holdings from expropriation and arbitrary taxation through proxies, shell companies, and offshore firms. Our theoretical framework emphasizes the role of political connections in de- cisions to obfuscate. Linking information from investigative journalists on Ukrainian oligarchs with firm-level administrative data on formal ownership ties, we observe ob- fuscation among more than two-thirds of oligarch-controlled firms, but such behavior is much less common for connected oligarchs. Further exploiting the abrupt shock to political connections that accompanied the Orange Revolution, we find a sharp rise in obfuscation among previously connected oligarchs. Keywords: property rights, predation, oligarchs, ownership chains, political connec- tions JEL codes: D23, G32, P26 ∗Earle: George Mason University, Schar School of Policy and Government, 3351 Fairfax Drive, Arling- ton, VA 22201,
[email protected]. Gehlbach: University of Chicago, Department of Political Science and Harris School of Public Policy, 5828 South University Avenue, Chicago, IL 60637,
[email protected]. Shirikov: University of Wisconsin{Madison, Department of Political Science, 110 North Hall, 1050 Bascom Mall, Madison, WI 53706,
[email protected]. Shpak: George Mason University, Schar School of Policy and Government, 3351 Fairfax Drive, Arlington, VA 22201,
[email protected].