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Political Connectedness and Firm Performance: Evidence from Germany

Author

Listed:
  • Niessen Alexandra

    (University of Mannheim,Mannheim, Germany)

  • Ruenzi Stefan

    (University of Mannheim,Mannheim, Germany)

Abstract

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.

Suggested Citation

  • Niessen Alexandra & Ruenzi Stefan, 2010. "Political Connectedness and Firm Performance: Evidence from Germany," German Economic Review, De Gruyter, vol. 11(4), pages 441-464, December.
    • Handle: RePEc:bpj:germec:v:11:y:2010:i:4:p:441-464
    DOI: 10.1111/j.1468-0475.2009.00482.x
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H89 - Public Economics - - Miscellaneous Issues - - - Other
    • K29 - Law and Economics - - Regulation and Business Law - - - Other
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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