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Out of Sight, Out of Mind:The Value of Political Connections in Social Networks

Author

Listed:
  • Quoc-Anh Do

    () (School of Economics, Singapore Management University, Singapore 178903)

  • Bang Dang Nguyen

    () (Finance and Accounting Group, Judge Business School, University of Cambridge, Cambridge CB2 1AG, U.K)

  • Yen-Teik Lee

    () (Department of Finance, Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

  • Kieu-Trang Nguyen

    () (SPEA, Indiana University, Bloomington, IN 47401, U.S.A)

Abstract

This paper investigates the impact of social-network connections to politicians on firm value. We focus on the networks of university classmates and alumni among directors of U.S. public firms and congressmen. Using the Regression Discontinuity Design based on close elections from 2000 to 2008, we identify that a director’s connection to an elected congressman causes a Weighted Average Treatment Effect on Cumulative Abnormal Returns of -2.65% surrounding the election date. The effect is robust and consistent through various specifications, parametric and nonparametric, with different outcome measures and social network definitions, and across many subsamples. We find evidence to support the hypothesis that firms benefit more when connected politicians remain in state politics than when they move to federal office. Overall, our study identifies the value of political connections through social networks and uncovers its variation across different states and between state and federal political environments.

Suggested Citation

  • Quoc-Anh Do & Bang Dang Nguyen & Yen-Teik Lee & Kieu-Trang Nguyen, 2011. "Out of Sight, Out of Mind:The Value of Political Connections in Social Networks," Working Papers 19-2011, Singapore Management University, School of Economics.
  • Handle: RePEc:siu:wpaper:19-2011
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    References listed on IDEAS

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    Cited by:

    1. Coulomb, Renaud & Sangnier, Marc, 2014. "The impact of political majorities on firm value: Do electoral promises or friendship connections matter?," Journal of Public Economics, Elsevier, vol. 115(C), pages 158-170.
    2. Quoc-Anh Do & Kieu-Trang Nguyen & Anh N. Tran, 2017. "One Mandarin Benefits the Whole Clan: Hometown Favoritism in an Authoritarian Regime," American Economic Journal: Applied Economics, American Economic Association, vol. 9(4), pages 1-29, October.
    3. Quoc-Anh Do & Kieu-Trang Nguyen & Anh N. Tran, 2017. "One Mandarin Benefits the Whole Clan: Hometown Favoritism in an Authoritarian Regime," American Economic Journal: Applied Economics, American Economic Association, vol. 9(4), pages 1-29, October.
    4. Quoc-Anh Do & Kieu-Trang Nguyen & Anh N. Tran, 2017. "One Mandarin Benefits the Whole Clan: Hometown Favoritism in an Authoritarian Regime," American Economic Journal: Applied Economics, American Economic Association, vol. 9(4), pages 1-29, October.
    5. Kieu-Trang Nguyen & Quoc-Anh Do & Anh Tran, 2011. "One Mandarin Benefits the Whole Clan: Hometown Infrastructure and Nepotism in an Autocracy," Working Papers 18-2011, Singapore Management University, School of Economics.
    6. Renaud Coulomb & Marc Sangnier, 2012. "Impacts of Political Majorities on French Firms: Electoral Promises or Friendship Connections?," Working Papers halshs-00671405, HAL.
    7. Coulomb, Renaud & Sangnier, Marc, 2014. "The impact of political majorities on firm value: Do electoral promises or friendship connections matter?," Journal of Public Economics, Elsevier, vol. 115(C), pages 158-170.

    More about this item

    Keywords

    Social network; political connection; close election; regression discontinuity design; firm value.;

    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
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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