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Measuring the Extent and Implications of Corporate Political Connections in Prewar Japan

Author

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  • Tetsuji Okazaki

    (Faculty of Economics, The University of Tokyo)

  • Michiru Sawada

    (College of Economics, Nihon University)

Abstract

This paper investigates the extent, determinants, and implications of the political connections of firms at the peak of democracy in prewar Japan, identifying a firm as politically connected if one of its directors was simultaneously a member of the House of Representatives. We analyze the data of publicly traded companies in the periods before and after the 1928 and 1930 general elections. It is found that almost 20 % of publicly traded companies had political connections through politician directors. Regressions analyses reveal that smaller or badly performing firms and firms in the electric utilities and railroad industries, where government licenses were important, were more likely to have political connections. Furthermore, we find that the stock returns of firms that had new political connections improved from the pre-election period to the post-election period.

Suggested Citation

  • Tetsuji Okazaki & Michiru Sawada, 2014. "Measuring the Extent and Implications of Corporate Political Connections in Prewar Japan," CIRJE F-Series CIRJE-F-946, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2014cf946
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2014/2014cf946.pdf
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    References listed on IDEAS

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    1. Fan, Joseph P.H. & Wong, T.J. & Zhang, Tianyu, 2007. "Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms," Journal of Financial Economics, Elsevier, vol. 84(2), pages 330-357, May.
    2. Agrawal, Anup & Knoeber, Charles R, 2001. "Do Some Outside Directors Play a Political Role?," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 179-198, April.
    3. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    4. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
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    Cited by:

    1. Masami Imai & Richard S. Grossman, 2014. "Taking the Lord's Name in Vain: The Impact of Connected Directors on 19th century British Banks," Working Papers e86, Tokyo Center for Economic Research.
    2. 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.

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