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Political rights, taxation, and firm valuation: Evidence from Saxony around 1900

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  • Lehmann, Sibylle H.
  • Hauber, Philipp
  • Opitz, Alexander

Abstract

The extension of the franchise to social groups with less property and income is associated with greater income redistribution from the rich to the poor and extension in the provision of public goods, which leads to the growth of government expenditure. All of these expected changes are costly and therefore a higher taxation of citizens and industrial firms can be expected, which might have negative effects on investors behavior. The present paper studies the effects of changes in the suffrage in the Kingdom of Saxony at the end of the 19th Century on stock market prices of Saxon firms listed on the Berlin stock exchange: Here the electoral law was changed twice: In 1896 a very restrictive franchise was introduced, which was abolished in 1909 and replaced by a more democratic electoral law. By applying standard event study methodology, we can provide evidence that the restriction of the electoral law had positive effects on Saxon firms on the stock market, whereby the extension in 1909 had negative effects on the stock market. --

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Bibliographic Info

Paper provided by University of Hohenheim, Center for Research on Innovation and Services (FZID) in its series FZID Discussion Papers with number 59-2012.

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Date of creation: 2012
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Handle: RePEc:zbw:fziddp:592012

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Keywords: Financial History; Taxation; Stock Markets; Event Study; Investors; Suffrage; Elections;

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  1. John R. Lott & Jr. & Lawrence W. Kenny, 1999. "Did Women's Suffrage Change the Size and Scope of Government?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(6), pages 1163-1198, December.
  2. Kolari, James W. & Pynnonen, Seppo, 2011. "Nonparametric rank tests for event studies," Journal of Empirical Finance, Elsevier, Elsevier, vol. 18(5), pages 953-971.
  3. Husted, Thomas A & Kenny, Lawrence W, 1997. "The Effect of the Expansion of the Voting Franchise on the Size of Government," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(1), pages 54-82, February.
  4. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  5. Acemoglu, Daron & Robinson, James A, 1998. "Why did the West Extend the Franchise? Democracy, Inequality and Growth in Historical Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1797, C.E.P.R. Discussion Papers.
  6. Corrado, Charles J. & Zivney, Terry L., 1992. "The Specification and Power of the Sign Test in Event Study Hypothesis Tests Using Daily Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 27(03), pages 465-478, September.
  7. Gelman, Sergey & Burhop, Carsten, 2008. "Taxation, regulation and the information efficiency of the Berlin stock exchange, 1892–1913," European Review of Economic History, Cambridge University Press, Cambridge University Press, vol. 12(01), pages 39-66, April.
  8. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, Elsevier, vol. 23(2), pages 385-395, August.
  9. James W. Kolari & Seppo Pynnönen, 2010. "Event Study Testing with Cross-sectional Correlation of Abnormal Returns," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 23(11), pages 3996-4025, November.
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