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Out of Sight, Out of Mind:The Value of Political Connections in Social Networks

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Author Info

  • Quoc-Anh Do

    ()
    (School of Economics, Singapore Management University, Singapore 178903)

  • Bang Dang Nguyen

    ()
    (Finance and Accounting Group, Judge Business School, University of Cambridge, Cambridge CB2 1AG, U.K)

  • Yen-Teik Lee

    ()
    (Department of Finance, Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

  • Kieu-Trang Nguyen

    ()
    (SPEA, Indiana University, Bloomington, IN 47401, U.S.A)

Abstract

This paper investigates the impact of social-network connections to politicians on firm value. We focus on the networks of university classmates and alumni among directors of U.S. public firms and congressmen. Using the Regression Discontinuity Design based on close elections from 2000 to 2008, we identify that a director’s connection to an elected congressman causes a Weighted Average Treatment Effect on Cumulative Abnormal Returns of -2.65% surrounding the election date. The effect is robust and consistent through various specifications, parametric and nonparametric, with different outcome measures and social network definitions, and across many subsamples. We find evidence to support the hypothesis that firms benefit more when connected politicians remain in state politics than when they move to federal office. Overall, our study identifies the value of political connections through social networks and uncovers its variation across different states and between state and federal political environments.

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Bibliographic Info

Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 19-2011.

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Length: 50 pages
Date of creation: Dec 2011
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:19-2011

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Keywords: Social network; political connection; close election; regression discontinuity design; firm value.;

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References

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  1. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2011. "How Prediction Markets Can Save Event Studies," IZA Discussion Papers 5640, Institute for the Study of Labor (IZA).
  2. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2006. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," Research Papers 1928, Stanford University, Graduate School of Business.
  3. Seema Jayachandran, 2004. "The Jeffords Effect," UCLA Economics Online Papers 297, UCLA Department of Economics.
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  13. Mobius, Markus & Do, Quoc-Anh & Leider, Stephen & Rosenblat, Tanya, 2009. "Directed Altruism and Enforced Reciprocity in Social Networks," Scholarly Articles 3054685, Harvard University Department of Economics.
  14. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2007. "Party Influence in Congress and the Economy," International Quarterly Journal of Political Science, now publishers, vol. 2(3), pages 277-286, August.
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Cited by:
  1. Renaud Coulomb & Marc Sangnier, 2014. "The Impact of Political Majorities on Firm Value: Do Electoral Promises or Friendship Connections Matter?," AMSE Working Papers 1414, Aix-Marseille School of Economics, Marseille, France, revised May 2014.
  2. Kieu-Trang Nguyen & Quoc-Anh Do & Anh Tran, 2012. "One Mandarin Benefits the Whole Clan: Hometown Infrastructure and Nepotism in an Autocracy," Working Papers 07-2012, Singapore Management University, School of Economics.
  3. repec:hal:wpaper:halshs-00671405 is not listed on IDEAS
  4. Quoc-Anh Do & Kieu-Trang Nguyen & Anh N. Tran, 2013. "One Mandarin Benefits the Whole Clan: Hometown Favoritism in an Authoritarian Regime," Sciences Po publications 13, Sciences Po.

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