Betting on Hitler - The Value of Political Connections in Nazi Germany

Abstract:     
We examine the effect of close links with the NSDAP on the stock price of listed firms in 1932-33. While earlier work had primarily analysed the connections between executives and the Nazi party, we also look at supervisory board membership - the importance of which is hard to overestimate in the case of Germany industry. One implication of our work is that, weighted by stockmarket capitalization in 1932, more than half of listed firms on the Berlin stock exchange had substantive links with the NSDAP. Crucially, stock market investors recognized the value of these links, sending the share prices of connected firms up once the new regime was firmly established. While all firms including unaffiliated ones saw a rise in their stock prices after Hitler's seizure of power, those with board members known to favor the party (or backing it financially) outperformed the market by 6 to 9 percent between January and May 1933. We show that this finding is robust to a range of additional control variables and alternative estimation techniques.

Keywords: Political connections, stock market, asset pricing, Nazi rise to power, interwar Germany

JEL Classifications: G12, G13, G15, N24

Accepted Paper Series