Political connections and firm value: Evidence from the regression discontinuity design of close gubernatorial elections

• Main Authors: DO, Quoc-Anh, LEE, Yen Teik, NGUYEN, Bang D.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Political connection; firm value; social networks; close gubernatorial election; regression discontinuity design; corruption; procurement; American Politics; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5662; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6661/viewcontent/PoliticalConnections_FirmValue_2015_wp.pdf
• Institution: Singapore Management University

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.