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Bringing Connections Onboard: The Value of Political Influence

Author

Listed:
  • Green, Colin P.

    (Norwegian University of Science and Technology (NTNU))

  • HomRoy, Swarnodeep

    (University of Groningen)

Abstract

In 2002, an amendment to UK parliamentary regulations removed restrictions on the participation of members of parliament (MPs) in parliamentary proceedings related to their corporate interests. Using this amendment as a quasi-natural experiment, we demonstrate gains in firm value and profitability for firms with prior connections to MPs. These benefits are higher for firms with family ownership and lower accounting transparency. Both firms and politicians to change their behaviour. Post-amendment, firms are more likely to appoint MPs and also reduce political donations. Politicians with corporate connections were more likely to both become members of, and conditional on this, attend meetings of parliamentary select and joint committee. Our results highlight mechanisms of returns from political influence in well-developed institutional contexts.

Suggested Citation

  • Green, Colin P. & HomRoy, Swarnodeep, 2020. "Bringing Connections Onboard: The Value of Political Influence," IZA Discussion Papers 13392, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp13392
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    More about this item

    Keywords

    political connections; board of directors; firm value;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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