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Political connectedness and firm performance: Evidence from Germany

  • Niessen, Alexandra
  • Ruenzi, Stefan

This paper investigates politically connected firms in Germany. With the introduction of a new transparency law in 2007, information on additional income sources for all members of the German parliament became publicly available. We find that members of the conservative party (CDU/CSU) and the liberal party (FDP) are more likely to work for firms than members of left-wing parties (SPD and The Left) or the green party (Alliance 90/The Greens). Politically connected firms are larger, less risky, and have lower market valuations than unconnected firms. They also have fewer growth opportunities, but slightly better accounting performance. On the stock market, connected firms significantly outperform unconnected firms in 2006, i.e. prior to the publication of the data on political connections. Differences in stock market performance are much smaller in 2007.

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Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 07-15.

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Date of creation: 2009
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Handle: RePEc:zbw:cfrwps:0715
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  1. Thomas Ferguson & Hans-Joachim Voth, 2008. "Betting on Hitler-The Value of Political Connections in Nazi Germany," The Quarterly Journal of Economics, MIT Press, vol. 123(1), pages 101-137, 02.
  2. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
  3. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
  4. Aggarwal Rajesh K. & Meschke Felix & Wang Tracy Yue, 2012. "Corporate Political Donations: Investment or Agency?," Business and Politics, De Gruyter, vol. 14(1), pages 1-40, April.
  5. Faccio, Mara & Parsley, David, 2006. "Sudden Deaths: Taking Stock of Political Connections," CEPR Discussion Papers 5460, C.E.P.R. Discussion Papers.
  6. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119.
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