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Political rights, taxation, and firm valuation: Evidence from Saxony around 1900

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  • Lehmann, Sibylle H.
  • Hauber, Philipp
  • Opitz, Alexander

Abstract

The extension of the franchise to social groups with less property and income is associated with greater income redistribution from the rich to the poor and extension in the provision of public goods, which leads to the growth of government expenditure. All of these expected changes are costly and therefore a higher taxation of citizens and industrial firms can be expected, which might have negative effects on investors behavior. The present paper studies the effects of changes in the suffrage in the Kingdom of Saxony at the end of the 19th Century on stock market prices of Saxon firms listed on the Berlin stock exchange: Here the electoral law was changed twice: In 1896 a very restrictive franchise was introduced, which was abolished in 1909 and replaced by a more democratic electoral law. By applying standard event study methodology, we can provide evidence that the restriction of the electoral law had positive effects on Saxon firms on the stock market, whereby the extension in 1909 had negative effects on the stock market.

Suggested Citation

  • Lehmann, Sibylle H. & Hauber, Philipp & Opitz, Alexander, 2012. "Political rights, taxation, and firm valuation: Evidence from Saxony around 1900," FZID Discussion Papers 59-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    • Handle: RePEc:zbw:fziddp:592012
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial History; Taxation; Stock Markets; Event Study; Investors; Suffrage; Elections;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913

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