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Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections

Author

Listed:
  • Quoc-Anh Do

    (Département d'économie)

  • Yen-Teik Lee

    (Singapore Management University)

  • Bang Dang Nguyen

    (University of Cambridge)

Abstract

Using the regression discontinuity design of close gubernatorial elections in the U.S., we identify a significant and positive impact of the social networks of corporate directors and politicians on firm value. Firms connected to elected governors increase their value by 3.89%. Political connections are more valuable for firms connected to winning challengers, for smaller and financially dependent firms, in more corrupt states, in states of connected firms’ headquarters and operations, and in closer, smaller, and active networks. Post-election, firms connected to the winner receive significantly more state procurement contracts and invest more than do firms connected to the loser.

Suggested Citation

  • Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2015. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Sciences Po publications 10526, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/65rged1j6o9gl9jvp8a09o3eue
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Political connections pay off in the US
      by Economic Logician in Economic Logic on 2013-09-16 19:53:00

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    6. Sokolov, Vladimir & Solanko, Laura, 2016. "Political influence, firm performance and survival," BOFIT Discussion Papers 20/2016, Bank of Finland, Institute for Economies in Transition.
    7. Grossman, Richard S. & Imai, Masami, 2016. "Taking the lord's name in vain: The impact of connected directors on 19th century British banks," Explorations in Economic History, Elsevier, vol. 59(C), pages 75-93.
    8. Egerod, Benjamin C. K., 2019. "The Revolving Door and Regulatory Enforcement: Firm-Level Evidence on Tax Rates and IRS Audits," Working Papers 289, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
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    11. Thomas Groll & Anja Prummer, 2016. "Whom to Lobby? Targeting in Political Networks," Working Papers 808, Queen Mary University of London, School of Economics and Finance.
    12. Thomas Groll & Anja Prummer, 2016. "Whom to Lobby? Targeting in Political Networks," Working Papers 808, Queen Mary University of London, School of Economics and Finance.
    13. Lehrer, Nimrod David, 2018. "The value of political connections in a multiparty parliamentary democracy: Evidence from the 2015 elections in Israel," European Journal of Political Economy, Elsevier, vol. 53(C), pages 13-58.
    14. Lehne, Jonathan & Shapiro, Jacob N. & Vanden Eynde, Oliver, 2018. "Building connections: Political corruption and road construction in India," Journal of Development Economics, Elsevier, vol. 131(C), pages 62-78.
    15. Louis-Philippe Beland & Bulent Unel, 2019. "Politics and entrepreneurship in the US," Canadian Journal of Economics, Canadian Economics Association, vol. 52(1), pages 33-57, February.
    16. Louis-Philippe Beland & Ozkan Eren & Bulent Unel, 2015. "Politics and Entrepreneurial Activity in the U.S," Departmental Working Papers 2015-04, Department of Economics, Louisiana State University.
    17. repec:zbw:bofitp:2016_020 is not listed on IDEAS
    18. Changzheng Zhang & Jiao Zhang & Qian Guo, 2018. "Can Political Connections Of Independent Directors Improve Firm Perfomance? Evidence Of Chinese Listed Manufacturing Companies Over 2008 - 2013," Malaysian E Commerce Journal (MECJ), Zibeline International Publishing, vol. 2(2), pages 5-12, January.
    19. Asatryan, Zareh & Baskaran, Thushyanthan & Hufschmidt, Patrick & Stöcker, Alexander, 2021. "Regional favoritism and human capital accumulation in Africa," ZEW Discussion Papers 21-030, ZEW - Leibniz Centre for European Economic Research.
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    21. Zhang, Bobo & Zhang, Zhou, 2022. "Shining light on corporate political spending: Evidence from shareholder engagements," International Review of Law and Economics, Elsevier, vol. 70(C).
    22. Coulomb, Renaud & Sangnier, Marc, 2014. "The impact of political majorities on firm value: Do electoral promises or friendship connections matter?," Journal of Public Economics, Elsevier, vol. 115(C), pages 158-170.
    23. Brugués, F. & Brugués, J. & Giambra, S., 2018. "Political connections and misallocation of procurement contracts: evidence from Ecuador," Research Department working papers 1394, CAF Development Bank Of Latinamerica.
    24. Andre Medeiros Sztutman & Dante Mendes Aldrighi, 2019. "Political Connections and Access to Brazilian Development Bank’s Loans," Working Papers, Department of Economics 2019_13, University of São Paulo (FEA-USP).
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    More about this item

    Keywords

    Close Gubernatorial Election; Corruption; Firm Value; Political Connection; Procurement; Regression Discontinuity Design; Social Nteworks;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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