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

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  • La Ferrara, Eliana
  • Guidolin, Massimo

Abstract

This Paper studies the relationship between civil war and private investment 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 also use nonparametric techniques with daily data on the intensity of conflict, and find that moderate levels of violence increased the abnormal returns of the ?Angolan? portfolio. We interpret our results in the light of the widespread rent seeking in the Angolan mineral industry.

Suggested Citation

  • La Ferrara, Eliana & Guidolin, Massimo, 2004. "Diamonds are Forever, Wars are Not: Is Conflict Bad for Private Firms?," CEPR Discussion Papers 4668, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4668
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    More about this item

    Keywords

    Civil war; Event studies; Rent-seeking; Angola;
    All these keywords.

    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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