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Sleeping with the Enemy: The Perils of Having the Government On(the)board

Santiago Barraza (), Martín Rossi and Christian Ruzzier ()
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Santiago Barraza: ESCP Business School

No 149, Working Papers from Universidad de San Andres, Departamento de Economia

Abstract: We exploit a unique natural experiment (the nationalization of Argentina’s pension system) that yields exogenous variation in new political connections (i.e., connections that were not desired) at the firm level to provide an assessment of their effect on firm value, arguably free from endogeneity and sample-selection concerns. We find that political connections have a large negative effect on the value of connected firms, but only when, on top of becoming a shareholder, the government has the right to place directors on the board. This effect cannot be explained by liquidity or risk, suggesting connections might be operating through cash flows.

Keywords: Political connections; corporate governance; boards; grabbing hand; nationalization; firm value; government ownership; rent seeking (search for similar items in EconPapers)
JEL-codes: G32 G34 H11 H13 O16 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2021-03, Revised 2021-03
New Economics Papers: this item is included in nep-cfn
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Downloads: (external link) First version, March 2021 (application/pdf)

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