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

Santiago Barraza, Martín Rossi and Christian Ruzzier ()

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

Abstract: We study the causal effect of unsought political connections on firm value. To address concerns of potential endogeneity and sample-selection bias we exploit the nationalization of Argentina’s pension system, a unique natural experiment yielding exogenous variation in new political connections. We find unsought political connections to have a large negative effect on the value of newly connected firms. Yet this result only materializes when, in addition to becoming a shareholder, the government also obtains the right to appoint directors. Decreased stock liquidity or higher stock volatility do not explain this result, suggesting a channel that decreases expected cash flows to shareholders.

Keywords: Political connections; corporate governance; grabbing hand; firm value; government ownership (search for similar items in EconPapers)
JEL-codes: G32 G34 H11 H13 O16 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2021-03, Revised 2021-12
New Economics Papers: this item is included in nep-cfn
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https://webacademicos.udesa.edu.ar/pub/econ/doc149.pdf First version, March 2021 (application/pdf)

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