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Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?

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Author Info
Massimo Guidolin
Eliana La Ferrara

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Abstract

This paper studies the relationship between civil war and the value of firms in a poor, resource-abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as "bad news" rather than "good news" for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We interpret our findings in light of conflict-generated entry barriers, government bargaining power, and transparency in the licensing process. (JEL D74, G32, O13, O17, Q34)

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File URL: http://hdl.handle.net/10.1257/aer.97.5.1978
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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 5 (December)
Pages: 1978-1993
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Handle: RePEc:aea:aecrev:v:97:y:2007:i:5:p:1978-1993

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alberto Abadie & Javier Gardeazabal, 2001. "The Economic Costs of Conflict: A Case-Control Study for the Basque Country," NBER Working Papers 8478, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Collier, Paul & Hoeffler, Anke, 1998. "On Economic Causes of Civil War," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 563-73, October.
  3. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June. [Downloadable!] (restricted)
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  4. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September. [Downloadable!] (restricted)
  5. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July. [Downloadable!] (restricted)
  6. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Massimo Guidolin & Eliana La Ferrara, 2005. "The economic effects of violent conflict: evidence from asset market reactions," Working Papers 2005-066, Federal Reserve Bank of St. Louis. [Downloadable!]
  2. Kyle Hyndman, 2005. "Status Quo Effects in Bargaining: An Empirical Analysis of OPEC," Industrial Organization 0511016, EconWPA. [Downloadable!]
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  3. Stefano DellaVigna & Eliana La Ferrara, 2007. "Detecting Illegal Arms Trade," NBER Working Papers 13355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Olsson, Ola, 2004. "Diamonds Are a Rebel’s Best Friend," Working Papers in Economics 156, Göteborg University, Department of Economics.
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  5. Ouarda Merrouche, 2006. "Economic Consequences of Wars: Evidence from Landmine Contamination in Mozambique," Economics Working Papers ECO2006/22, European University Institute. [Downloadable!]
  6. Tom Bundervoet & Philip Verwimp & Richard Akresh, 2007. "Health and Civil War in Rural Burundi," IZA Discussion Papers 2951, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Akresh, Richard & Verwimp, Philip & Bundervoet, Tom, 2007. "Civil war, crop failure, and child stunting in Rwanda," Policy Research Working Paper Series 4208, The World Bank. [Downloadable!]
  8. Ouarda Merrouche, 2007. "Landmines, Poverty and Recovery: Instrumental Variables Evidence from Mozambique," Working Papers 200709, Geary Institute, University College Dublin. [Downloadable!]
  9. Raddatz, Claudio, 2009. "Multilateral debt relief through the eyes of financial markets," Policy Research Working Paper Series 4872, The World Bank. [Downloadable!]
  10. Timothy Besley & Hannes Mueller, 2009. "Estimating the Peace Dividend:The Impact of Violence on HousePrices in Northern Ireland," STICERD - Economic Organisation and Public Policy Discussion Papers Series 011, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  11. Jo Thori Lind & Karl Ove Moene & Fredrik Willumsen, 2009. "Opium for the Masses? Conflict-Induced Narcotics Production in Afghanistan," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  12. Ouarda Merrouche, 2006. "The long-term educational cost of war: evidence from landmine contamination in Cambodia," IFS Working Papers W06/11, Institute for Fiscal Studies. [Downloadable!]
  13. Joshua D. Angrist & Adriana D. Kugler, 2007. "Rural Windfall or a New Resource Curse? Coca, Income, and Civil Conflict in Colombia," IZA Discussion Papers 2790, Institute for the Study of Labor (IZA). [Downloadable!]
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