Publication Type
Working Paper
Version
publishedVersion
Publication Date
12-2011
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 director’s 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 and social network definitions, and across many subsamples. We find evidence to support 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
Finance | Political Economy
Research Areas
Econometrics
First Page
1
Last Page
51
Publisher
SMU Economics and Statistics Working Paper Series, No. 19-2011
City or Country
Singapore
Citation
DO, Quoc-Anh; NGUYEN, Bang Dang; LEE, Yen Teik; and NGUYEN, Kieu-Trang.
Out of Sight, Out of Mind: The Value of Political Connections in Social Networks. (2011). 1-51.
Available at: https://ink.library.smu.edu.sg/soe_research/1322
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.