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The value of political connection: Evidence from the 2011 Egyptian revolution

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  • Dang, Vinh Q.T.
  • So, Erin P.K.
  • Yan, Isabel K.M.

Abstract

We manually construct a list of Egyptian exchange-traded firms that were connected to President Mubarak and use the sudden collapse of his 30-year regime in the 2011 Arab Spring, a natural experiment exogenous to Egyptian firms, to measure the value of this political connection. We find that connection to Mubarak had contributed significantly, about 22.4%, to firm value. Moreover, state-ownership and connection to Mubarak remained separate sources of political capital under the entrenched autocracy. Mubarak-connected firms experienced lower financial constraint before the collapse of the regime and debt-induced equity propping at the peak of the 2008 global crisis.

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  • Dang, Vinh Q.T. & So, Erin P.K. & Yan, Isabel K.M., 2018. "The value of political connection: Evidence from the 2011 Egyptian revolution," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 238-257.
    • Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:238-257
    DOI: 10.1016/j.iref.2017.10.027
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    Cited by:

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    2. Sultan Sikandar Mirza & Raheel Safdar & Yan Yu & M. Awais Gulzar, 2019. "Managerial Empowerment and Firm Risk-Taking," SAGE Open, , vol. 9(2), pages 21582440198, June.
    3. Su, Zhong-qin & Xiao, Zuoping & Yu, Lin, 2019. "Do political connections enhance or impede corporate innovation?," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 94-110.
    4. Lin, Yan & Liu, Yijia & Chan, Kam C., 2021. "Political connections and product market competition: Effects and channels," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 801-816.
    5. Guo, Shijun & Yu, Xin & Faff, Robert, 2021. "Political connections and media slant," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 58-80.
    6. Brodmann, Jennifer & Unsal, Omer & Hassan, M. Kabir, 2019. "Political lobbying, insider trading, and CEO compensation," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 548-565.

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    More about this item

    Keywords

    Political connection; Firm value; Financial constraint; Propping; Egypt;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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