Out of Sight, Out of Mind: The Value of Political Connections in Social Networks

55 Pages Posted: 16 Mar 2012 Last revised: 22 Jun 2012

See all articles by Bang Dang Nguyen

Bang Dang Nguyen

University of Cambridge Judge Business School

Quoc-Anh Do

Sciences Po - Department of Economics; Centre for Economic Policy Research (CEPR)

Yen Teik Lee

National University of Singapore (NUS) - Department of Finance

Kieu-Trang Nguyen

London School of Economics & Political Science

Date Written: June 22, 2012

Abstract

Focusing on former university classmates among corporate directors and U.S. congressmen, and the regression discontinuity design of close Congress elections from 2000 to 2008, we provide robust evidence of the causal impact of social-network based political connections on firm value. The value of political connections varies across politicians, states, and firms remarkably more than previously reported. While connections to powerful senators increase firm value, a challenger’s election causes a weighted average treatment effect of -3.24% on connected firms’ cumulative abnormal returns surrounding election day. The paper’s finding stresses the importance of state-level political connections, especially in more corrupt states.

Keywords: Social network, political connection, close election, regression discontinuity design, firm value, state-level politics

JEL Classification: D72, D73, D85, G3, G10, G11, G14, G30, C21

Suggested Citation

Nguyen, Bang Dang and Do, Quoc-Anh and Lee, Yen Teik and Nguyen, Kieu-Trang, Out of Sight, Out of Mind: The Value of Political Connections in Social Networks (June 22, 2012). Available at SSRN: https://ssrn.com/abstract=2023229 or http://dx.doi.org/10.2139/ssrn.2023229

Bang Dang Nguyen (Contact Author)

University of Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 122 376 0470 (Phone)
+44 1223 339701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/nguyenbd.html

Quoc-Anh Do

Sciences Po - Department of Economics ( email )

28 rue des Saints-Pères
Paris, 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Yen Teik Lee

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

Kieu-Trang Nguyen

London School of Economics & Political Science ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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