Communist Imprints and Corporate Behavior

Abstract

Are there long-term effects of communism on corporate behavior? We study firms in formerly communist East Germany using localized variation in West German influence. West German-influenced firms make decisions less consistent with communist norms compared to non-influenced firms: they vary employment more and rely on internal finance less. Supporting a beliefs-based channel, firms in counties where propaganda of these norms was more effective exhibit stronger communist ideology in their decisions. Corporate behavior also discontinuously varies along the former Inner German border, which we again trace to ideological imprints. Our results, which withstand numerous robustness tests, suggest a novel element of the Soviet-communist legacy.