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Political Connectedness and Firm Performance: Evidence from Germany

  • Alexandra Niessen
  • Stefan Ruenzi

This paper investigates politically connected firms in Germany. With the introduction of a new transparency law in 2007, information on additional income sources for all members of the German parliament became publicly available. We find that members of the conservative party (CDU/CSU) and the liberal party (FDP) are more likely to work for firms than members of left-wing parties (SPD and The Left) or the green party (Alliance 90/The Greens). Politically connected firms are larger, less risky and have lower market valuations than unconnected firms. They also have fewer growth opportunities, but slightly better accounting performance. On the stock market, connected firms significantly outperformed unconnected firms in 2006, i.e. before the publication of the data on political connections. Differences in stock market performance were much smaller in 2007. Copyright 2010 The Authors. German Economic Review 2010 Verein für Socialpolitik.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 11 (2010)
Issue (Month): (November)
Pages: 441-464

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Handle: RePEc:bla:germec:v:11:y:2010:i::p:441-464
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  1. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
  2. Ferguson, Thomas & Voth, Hans-Joachim, 2005. "Betting on Hitler - The Value of Political Connections in Nazi Germany," CEPR Discussion Papers 5021, C.E.P.R. Discussion Papers.
  3. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
  4. Aggarwal Rajesh K. & Meschke Felix & Wang Tracy Yue, 2012. "Corporate Political Donations: Investment or Agency?," Business and Politics, De Gruyter, vol. 14(1), pages 1-40, April.
  5. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119.
  6. Faccio, Mara & Parsley, David, 2006. "Sudden Deaths: Taking Stock of Political Connections," CEPR Discussion Papers 5460, C.E.P.R. Discussion Papers.
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