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Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?

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  • Massimo Guidolin
  • Eliana La Ferrara

Abstract

This paper studies the relationship between civil war and the value of firms in a poor, resource-abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as "bad news" rather than "good news" for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We interpret our findings in light of conflict-generated entry barriers, government bargaining power, and transparency in the licensing process. (JEL D74, G32, O13, O17, Q34)

Suggested Citation

  • Massimo Guidolin & Eliana La Ferrara, 2007. "Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?," American Economic Review, American Economic Association, vol. 97(5), pages 1978-1993, December.
  • Handle: RePEc:aea:aecrev:v:97:y:2007:i:5:p:1978-1993
    Note: DOI: 10.1257/aer.97.5.1978
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    References listed on IDEAS

    as
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    4. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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    1. Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms? (AER 2007) in ReplicationWiki

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