Using the network of university classmates among corporate directors and politicians and the regression discontinuity design of close gubernatorial elections from 1999 to 2010, we identify the positive and significant impact of social-network based political connections on firm value. Firms connected to elected governors increase value by 1.36% on average surrounding the election date. Political connections are more valuable in a state with a higher level of regulation and corruption, in smaller firms, and in firms dependent on external finance. Firms connected to election winners invest more, earn better operating performance, hold more cash, and enjoy better long-term stock performance.
Political connection, firm value, social network, close election, gubernatorial election, regression discontinuity design
American Politics | Corporate Finance
American Economic Association Annual Meeting 2013, January 4-6
City or Country
San Diego, CA
DO, Quoc-Anh; LEE, Yen Teik; and NGUYEN, Bang D..
Political connections and firm value: Evidence from the regression discontinuity design of close governorship elections. (2013). American Economic Association Annual Meeting 2013, January 4-6. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5662
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