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http://ssrn.com/abstract=891426
 
 

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Do Politically Connected Boards Affect Firm Value?


Eitan Goldman


Indiana University - Kelley School of Business - Department of Finance

Jongil So


affiliation not provided to SSRN

Jörg Rocholl


ESMT European School of Management and Technology

August 1, 2006

AFA 2007 Chicago Meetings Paper
Seventeenth Annual Utah Winter Finance Conference, Forthcoming
EFA 2007 Ljubljana Meetings Paper

Abstract:     
In countries with a weak legal system and a high level of corruption it has been shown that political connections are valuable to a corporation. This paper explores whether political connections are also important in the U.S., which has well-developed financial markets as well as a strong legal system. The paper uses an original hand-collected data set on the political connections of board members of S&P 500 companies to sort companies into those connected to the Republican Party and those connected to the Democratic Party. An analysis of the stock price response to the announcement of the board nomination of a politically connected director shows a positive abnormal stock return. The paper also analyses the stock price response to the Republican win in the 2000 Presidential Election and finds that companies connected to the Republican Party increase in value while companies connected to the Democratic Party decrease in value. The results further suggest that these effects are more pronounced for larger corporations. Finally, the paper controls for political donations by corporations prior to the 2000 election and finds that, unlike board connections, donations do not predict industry-adjusted abnormal post-election returns.

Number of Pages in PDF File: 36

Keywords: Politics, Boards, Corporate Governance

JEL Classification: G14, G18, G30, G34, G38

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Date posted: March 17, 2006  

Suggested Citation

Goldman, Eitan and So, Jongil and Rocholl, Jörg, Do Politically Connected Boards Affect Firm Value? (August 1, 2006). AFA 2007 Chicago Meetings Paper; Seventeenth Annual Utah Winter Finance Conference, Forthcoming; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: http://ssrn.com/abstract=891426 or http://dx.doi.org/10.2139/ssrn.891426

Contact Information

Eitan Goldman (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-856-0749 (Phone)

Jongil So
affiliation not provided to SSRN
Joerg Rocholl
ESMT European School of Management and Technology ( email )
Schlossplatz 1
Berlin
Germany
HOME PAGE: http://www.esmt.org/en/159244
Feedback to SSRN


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