Politicians and Directors in Social Networks: Regression Discontinuity Design Evidence from Close Elections

Finance

Speaker:Bang Dang Nguyen, Judge Business School, Cambridge
Date: Friday 27 May 2011
Time: 14:00 - 15:30
Location: Matrix Lecture Theatre, building 1

Further details

This paper investigates the impact of social-network connections to politicians on firm value. We focus on the networks of university classmates and alumni among US-market quoted firms’ directors and US Congressmen. Using the Regression Discontinuity Design based on close elections from 2000 to 2008, we identify that a connection to elected politicians causes a robust, unconfounded Weighted Average Treatment Effect on Cumulative Abnormal Returns of negative 2%, counting from one day before to a week after the election date. The effect is robust and consistent through many specifications, parametric and nonparametric, with different outcome measures, social network definitions, and across many subsamples. A possible explanation that firms receive more benefits when connected politicians remain at state level rather than move to federal office is supported by results from subsamples along the lines of state’s institutional qualities. This is to our knowledge the first study of this question with a nearrandomized-trial identification and a highly generalizable sample.

 

Keywords: Social network, political connection, close election, regression discontinuity design, firm value.

JEL Classifications: D72, D73, D85, G10, G11, G14, C21