Out of Sight, Out of Mind: The Value of Political Connections in Social Networks

Quoc-Anh Do, Yen Teik Lee, Bang Dang Nguyen () and Kieu-Trang Nguyen ()
Additional contact information
Bang Dang Nguyen: Finance and Accounting Group, Judge Business School, University of Cambridge
Kieu-Trang Nguyen: SPEA, Indiana University

No 22-2012, Working Papers from Singapore Management University, School of Economics

Abstract: This paper investigates the impact of social-network based political connections on firm value. We focus on the networks of university classmates and alumni among directors of U.S. public firms and congressmen. Comparing firms connected to elected versus defeated politicians in the Regression Discontinuity Design of close elections from 2000 to 2008, we provide evidence that political connections enhance firm value. However, the value of political connections varies in a more complex way than expected. While connections to powerful members of the Senate generate strong positive impact on firm value, connections to newly elected congressmen are less valuable to firms than connections to state-level politicians defeated in those elections. As a result, 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. Our results are robust and consistent through various specifications, parametric and nonparametric, with different outcome measures and social network definitions, and across many subsamples. Overall, our study identifies the value of political connections through social networks, uncovers its variation across different politicians’ backgrounds, and stresses the importance of state-level political connections.

Keywords: Corruption; Accountability; Population Concentration; Capital Cities; US State Politics; Media; Turnout; Campaign Contributions; Public Good Provision (search for similar items in EconPapers)
JEL-codes: D72 D73 L82 R12 R50 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2012-05
New Economics Papers: this item is included in nep-cdm, nep-net, nep-pol, nep-sea and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Published in SMU Economics and Statistics Working Paper Series

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Related works:
Working Paper: Out of Sight, Out of Mind: The Value of Political Connections in Social Networks (2013)
Working Paper: Out of Sight, Out of Mind: The Value of Political Connections in Social Networks (2013)
Working Paper: Out of Sight, Out of Mind:The Value of Political Connections in Social Networks (2011)
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