Working Paper: CEPR ID: DP5021
Authors: Thomas Ferguson; Hansjoachim Voth
Abstract: We examine the effect of close ties with the NSDAP on the stock price of listed firms in 1932-33. We consider not only links between the National Socialists and executives, as was common in earlier work, but also with supervisory board members ? whose importance is hard to overestimate in the case of German industry. One implication of our work is that, weighted by stock market capitalization in 1932, more than half of listed firms on the Berlin stock exchange had substantive links with the NSDAP. Crucially, stock market investors recognized the value of these links, sending the share prices of connected firms up as the new regime became firmly established. While the market as a whole rose after Hitler?s accession to power, firms with board members known to favour the party (or backing it financially) outperformed the market by 5-10% between January and May 1933. We show that this finding is robust to a range of additional control variables and alternative estimation techniques.
Keywords: Market Efficiency; Nazi Party; Political Connections; Stock Market Returns
JEL Codes: E60; G14; G18; N24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stock market investors recognize value of political connections (G18) | Rise in share prices (G19) |
| Political changes initiated by Nazi regime (N40) | Outperformance of connected firms (L25) |
| Political connections to the NSDAP (F55) | Stock market performance of firms (L25) |
| Firms with political connections (L14) | Stock prices increase (G19) |
| Political connections (D72) | Stock returns (G12) |