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Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections

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  • Do, Quoc-Anh
  • Lee, Yen-Teik
  • Nguyen, Bang Dang

Abstract

Using the regression discontinuity design of close gubernatorial elections in the U.S., we identify a significant and positive impact of the social networks of corporate directors and politicians on firm value. Firms connected to elected governors increase their value by 3.89%. Political connections are more valuable for firms connected to winning challengers, for smaller and financially dependent firms, in more corrupt states, in states of connected firms’ headquarters and operations, and in closer, smaller, and active networks. Post-election, firms connected to the winner receive significantly more state procurement contracts and invest more than do firms connected to the loser.

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  • Do, Quoc-Anh & Lee, Yen-Teik & Nguyen, Bang Dang, 2015. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," CEPR Discussion Papers 10526, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10526
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    Cited by:

    1. Bill Francis & Iftekhar Hasan & Qiang Wu, 2015. "Professors in the Boardroom and Their Impact on Corporate Governance and Firm Performance," Financial Management, Financial Management Association International, vol. 44(3), pages 547-581, September.
    2. Sokolov, Vladimir & Solanko, Laura, 2016. "Political influence, firm performance and survival," BOFIT Discussion Papers 20/2016, Bank of Finland, Institute for Economies in Transition.
    3. Jonathan Lehne & Jacob N. Shapiro & Oliver Vanden Eynde, 2016. "Building connections: Political corruption and road construction in India," Working Papers halshs-01349350, HAL.
    4. Grossman, Richard S. & Imai, Masami, 2016. "Taking the lord's name in vain: The impact of connected directors on 19th century British banks," Explorations in Economic History, Elsevier, vol. 59(C), pages 75-93.
    5. Lehne, Jonathan & Shapiro, Jacob N. & Vanden Eynde, Oliver, 2018. "Building connections: Political corruption and road construction in India," Journal of Development Economics, Elsevier, vol. 131(C), pages 62-78.
    6. Kondor, Péter & Koren, Miklós & Pál, Jenő & Szeidl, Ádám, 2014. "Cégek kapcsolati hálózatainak gazdasági szerepe
      [The economic role of the networks of connections possessed by firms]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1341-1360.
    7. Louis-Philippe Beland & Ozkan Eren & Bulent Unel, 2015. "Politics and Entrepreneurial Activity in the U.S," Departmental Working Papers 2015-04, Department of Economics, Louisiana State University.
    8. Louis-Philippe Beland & Bulent Unel, 2017. "Politics and Entrepreneurship in the U.S," Departmental Working Papers 2017-05, Department of Economics, Louisiana State University.

    More about this item

    Keywords

    close gubernatorial election; corruption; firm value; political connection; procurement; regression discontinuity design; social networks;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • 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
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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