Working Paper: CEPR ID: DP10526
Authors: Quocanh Do; Yenteik Lee; Bang Dang Nguyen
Abstract: Using the regression discontinuity design of close gubernatorial elections in the U.S., we identify a significant and positive impact of the social networks of corporate directors and politicians on firm value. Firms connected to elected governors increase their value by 3.89%. Political connections are more valuable for firms connected to winning challengers, for smaller and financially dependent firms, in more corrupt states, in states of connected firms? headquarters and operations, and in closer, smaller, and active networks. Post-election, firms connected to the winner receive significantly more state procurement contracts and invest more than do firms connected to the loser.
Keywords: close gubernatorial election; corruption; firm value; political connection; procurement; regression discontinuity design; social networks
JEL Codes: D72; D73; G28; G30; G34; G38; H57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political connections (D72) | firm value (G32) |
| winning politicians (D72) | firm value (G32) |
| losing politicians (D72) | firm value (G32) |
| political connections (D72) | cumulative abnormal return (CAR) (C22) |
| winning challengers (D72) | firm value (G32) |
| political connections (D72) | state procurement contracts (H57) |
| political connections (D72) | corporate investments (G30) |
| strength of social networks (Z13) | value of political connections (D72) |