DP10526 Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections

Author(s): Quoc-Anh Do, Yen-Teik Lee, Bang Dang Nguyen
Publication Date: April 2015
Keyword(s): close gubernatorial election, corruption, firm value, political connection, procurement, regression discontinuity design, social networks
JEL(s): D72, D73, G28, G30, G34, G38, H57
Programme Areas: Public Economics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10526

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.