Political Connections and Peers
60 Pages Posted: 29 Sep 2016 Last revised: 25 Aug 2018
Date Written: August 20, 2018
We examine the mechanisms between political connections and firm value and performance by studying how the political connections affect connected firms and their peers. Following the announcement of anti-corruption investigations, we find that industry peers of firms connected to investigated officials decrease in value but not performance, despite connected firms’ significant deterioration of value and performance. These results are consistent with an increase in political uncertainty. Interestingly, we document evidence of a transfer of reduced effective tax rates away from connected firms to firms headquartered in the same city, mitigating the negative impact of the increase in political uncertainty.
Keywords: Political Connections, Peers, Valuation, Performance
JEL Classification: G30, G32, G38
Suggested Citation: Suggested Citation