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Political rights, taxation, and firm valuation: Evidence from Saxony around 1900

Sibylle Lehmann-Hasemeyer (), Philipp Hauber and Alexander Opitz

No 59-2012, FZID Discussion Papers from University of Hohenheim, Center for Research on Innovation and Services (FZID)

Abstract: The extension of the franchise to social groups with less property and income is associated with greater income redistribution from the rich to the poor and extension in the provision of public goods, which leads to the growth of government expenditure. All of these expected changes are costly and therefore a higher taxation of citizens and industrial firms can be expected, which might have negative effects on investors behavior. The present paper studies the effects of changes in the suffrage in the Kingdom of Saxony at the end of the 19th Century on stock market prices of Saxon firms listed on the Berlin stock exchange: Here the electoral law was changed twice: In 1896 a very restrictive franchise was introduced, which was abolished in 1909 and replaced by a more democratic electoral law. By applying standard event study methodology, we can provide evidence that the restriction of the electoral law had positive effects on Saxon firms on the stock market, whereby the extension in 1909 had negative effects on the stock market.

Keywords: Financial History; Taxation; Stock Markets; Event Study; Investors; Suffrage; Elections (search for similar items in EconPapers)
JEL-codes: G11 G14 G18 D72 N23 N43 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-his and nep-pol
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