When Political Connections Backfire: Social Protests, Asset Damage, and Firms' Response

Abstract

While the benefits of corporate political connections are well-documented, their potential costs remain understudied. Analyzing approximately one million corporate assets, I find that assets of politically connected firms, defined as those led by former politicians, are significantly more likely to incur damage during social protests. Moreover, damages to connected firms result in a substantially greater destruction of underlying asset value. I further examine how these firms respond to such events. In the aftermath of protests, connected firms insure additional assets, expand coverage on existing policies, and, in some cases, sever political ties by dismissing politician managers. These findings provide insight into why many firms choose not to establish close relationships with politicians, despite the widely recognized benefits of such affiliations.

Keywords: Political connections, Social protests, Asset damage

JEL Classification: D72, D83, G3, O53