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

Listed author(s):
  • 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)

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.

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File URL: https://mercury.smu.edu.sg/rsrchpubupload/19567/PolDirFirmVal_11Sept2011.pdf
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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 19-2011.

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Length: 50 pages
Date of creation: Dec 2011
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:19-2011
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