Title

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

Publication Type

Conference Paper

Publication Date

9-2011

Abstract

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 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, social network definitions, and across many subsamples. We find evidence supporting 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.

Keywords

Social network, political connection, close election, regression discontinuity design, firm value.

Discipline

Communication Technology and New Media | Political Science

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

https://mercury.smu.edu.sg/rsrchpubupload/19567/PolDirFirmVal_11Sept2011.pdf