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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 [UK])

Abstract

Using the network of university classmates among corporate directors and politicians and the regression discontinuity design of close gubernatorial elections from 1999 to 2010, we identify the positive and significant impact of social-network based political connections on firm value. Firms connected to elected governors increase value by 1.36% on average surrounding the election date. Political connections are more valuable in a state with a higher level of regulation and corruption, in smaller firms, and in firms dependent on external finance. Firms connected to election winners invest more, earn better operating performance, hold more cash, and enjoy better long-term stock performance.

Suggested Citation

  • Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Sciences Po publications 15, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/7o52iohb7k6srk09n0dcia0po
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    More about this item

    Keywords

    Political connection; firm value; social network; close election; gubernatorial election; regression discontinuity design.;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • 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

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